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Annual_Report_for_Auchan_2008

2013-11-13 来源: 类别: 更多范文

Financial report 2 7 8 9 10 11 67 Group management report Consolidated balance sheet Consolidated income statement Consolidated statement of net cash ﬂows Statement of changes in consolidated equity Notes to the consolidated ﬁnancial statements Statutory auditors’ report Group management report for the ﬁnancial year ended 31 December 2008 (in € million - €m) The Board of Directors also prepares a report on the management of Groupe Auchan SA with, attached in appendix, a summary of the Company’s ﬁnancial results over the past ﬁve years. 2. ACTIVITIES AND RESULTS 2.1 Hypermarket and supermarket activities At 31 December 2008, the Group operated 468 hypermarkets and 726 supermarkets in 12 countries and region. The breakdown at 31 December 2008 was as follows: Country France Spain Italy Portugal Luxembourg Poland Hungary Ukraine Russia Mainland China 1. SIGNIFICANT EVENTS IN 2008 AND MAIN CHANGES IN THE CONSOLIDATION SCOPE At 31 December 2008, the Group consolidated 468 hypermarkets and 726 supermarkets, corresponding to net increases of respectively 60 and 18 units compared with 408 and 708 at 31 December 2007. Organic growth continued at the hypermarkets division with 45 store openings: 7 in Western Europe, 10 in Central and Eastern Europe (including the ﬁrst 2 Auchan hypermarkets in Ukraine) and 28 in Asia. In terms of external growth, Auchan acquired 3 hypermarkets (1 in Spain and 2 in Portugal) and ﬁnalised the purchase of the Ramstore chain from the Enka group: 12 stores adopted the Auchan City banner in 2008 and the 13th will reopen under the Auchan banner in 2009. The supermarkets network increased by 6 stores in Western Europe and 12 in Central and Eastern Europe, including 10 in Russia, where the network doubled in 2008. On 26 November 2008, the Group increased its shareholding in the Romanian company, MGV Distri-Hiper, from 29% to 49%. On 18 December an agreement was signed to acquire the remaining 51%, subject to the approval of the Romanian authorities. At 31 December 2008, MGV Distri-Hiper operated 6 hypermarkets under the Auchan banner. The Company was consolidated using the equity method in 2008. In the Middle East, in 2008 the Group reached an agreement with Nakheel to create a joint venture, HyperCorp LLC. In 2009, the Group will take a 10% stake in this Company, which will develop the Auchan chain in Dubai. Hypermarkets 121 50 47 26 1 24 11 2 33 132 Supermarkets 292 126 276 Notes 12 20 31 Auchan and 101 RT Mart Taiwan Romania 15 6 Consolidated using the equity method In 2008, the Hypermarket and Supermarket activities generated revenue amounting to, respectively, €31.8(1) billion, up by 8.4% relative to 2007, and €6.9 billion, up by 2.9%. International activities accounted for 50% of Hypermarket revenue and 52% of Supermarket revenue. Recurring operating income from the Hypermarket and Supermarket activities grew by 3.3% to €1,032 million. 2.2 Property management activity (Immochan) At 31 December 2008, Immochan and its subsidiaries managed 289 shopping centres (shopping malls and retail parks) in 12 countries, of which 265 fully-owned or leased and 24 under management contracts. In 2008, property management revenue grew by 12.8% to €432 million, of which 81% was generated within the euro zone. Operating income for the Immochan division increased by 5% to €212 million. (1) Including Alinéa and the new formats such as on-line sales and drive-in facilities. 2 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original GROUP MANAGEMENT REPORT 2.3 Customer credit activity (Banque Accord) At 31 December 2008, Banque Accord operated in 10 countries (France, Spain, Italy, Portugal, Poland, Hungary, Ukraine, Russia, China and Romania). Net banking income for the year 2008 increased by 15.7% to €325 million and total loan production grew by 4% to €7.7 billion. 6 million customers held a card issued by Banque Accord. Operating income (bank presentation) was severely affected by the increased cost of risk and declined by 49.4% to €30 million. Net income from continuing operations declined slightly, by 2.4%, to €744 million. Net income attributable to equity holders of the parent came to €727 million. It is not comparable with that of 2007 (€962 million), which included a net result of €215 million for the Moroccan activities divested during the year. Cash ﬂow from operations remained stable at €1,568 million compared with €1,564 million in 2007. Balance sheet and ﬁnancial structure Assets Investments excluding business combinations (acquisitions of intangible non-current assets, property, plant and equipment and investment property) increased by 20.9% to €2,126 million. Investments increased for all the activities but were concentrated, for around 80%, on the Hypermarket and Supermarket divisions due to the large number of store openings and the roll out of the Simply Market banner. Liabilities Total equity totalled €7,283 million at 31 December 2008 compared with €6,898 million at 31 December 2007, corresponding to an increase of €385 million. Equity attributable to the equity holders of the parent came to €7,163 million, up by €402 million. The main changes were as follows (in € million): • Result for 2008 • Dividends distributed • Foreign currency translation adjustments (arising mainly on the Russian, Polish and Ukrainian subsidiaries) 727 (180) (159) 2.4 Comments on the 2008 ﬁnancial statements Income statement Revenue came to €39.5 billion in 2008, up by 7.5% compared with 2007. At constant scope and exchange rates(2), the increase came to 7.4%. The breakdown of revenue remained virtually unchanged relative to 2007 with the Hypermarkets division accounting for 80%, the Supermarkets division for 18% and other activities accounting for the remaining 2%. In geographic terms, France accounted for 50% of revenue, Western Europe excluding France (Spain, Italy, Portugal and Luxembourg) contributed 29% and the rest of the world (Poland, Hungary, Ukraine, Russia, China and Taiwan) accounted for 21%. In 2007 the geographic breakdown had been 52%, 30% and 18%, respectively. In absolute value, gross proﬁt increased by 7.2% while the margin dropped from 23.2% to 23.1%. Recurring operating expenses (payroll expenses, external expenses, depreciation/amortisation and provisions, other operating income and expenses) increased by 8.3%, which was slightly higher than the increases in revenue and gross proﬁt. Consequently, recurring operating income increased by only 1% to €1,317 million. However, EBITDA, i.e. recurring operating income before other operating income and expenses and depreciation, amortisation and provisions(3) increased by 9.2% to €2,260 million compared with €2,070 million in 2007. The net cost of ﬁnancial debt increased from €156 million to €208 million, mainly as the result of an increase in average debt linked to the investments made in 2007 and 2008. The effective tax rate was down by 1.1 point, from 32.7% in 2007 to 31.6% in 2008. Note that Auchan Polska now fulﬁls the conditions for activating deferred tax on temporary differences. Minority interests amounted to €120 million compared with €137 million at 31 December 2007. Net debt, which corresponds to ﬁnancial debt net of cash and cash equivalents plus or minus derivative assets and liabilities and excluding ﬁnancing of the credit activity, amounted to €2,820 million at 31 December 2008 compared with €2,066 million at 31 December 2007. The net debt to equity ratio was 39% at 31 December 2008 compared with 30% at the end of 2007. Net debt represents 1.8 year of cash ﬂow from operations and 1.2 year of EBITDA. 3. POST BALANCE-SHEET DATE EVENTS No signiﬁcant event has occurred since the balance sheet date. (2) Acquisitions of new businesses were not signiﬁcant in 2007 and 2008. (3) Excluding provisions and impairment charges and reversals, apart from charges and reversals of impairment on inventories. 2008 FINANCIAL REPORT AUCHAN 3 GROUP MANAGEMENT REPORT 4. OUTLOOK In 2009, the Group intends to continue its policy of developing its 4 core businesses and its new formats through reasonable investment while taking into account the very difﬁcult economic environment. With around 60 hypermarket openings scheduled for the year, the Group expects to exceed the 500 milestone by the end of the year. The conversion of supermarkets to the Simply Market banner will be completed in the 4 countries in which it operates. ment and the Internal Audit department through risk committee meetings. For France and Portugal, risk is managed and monitored by the local Risk departments. In the case of the other countries, the partner is responsible for managing credit risk as it is the partner’s customer processes and system that determine the risk. In the case of joint ventures that have a local Risk department (the case of Spain) risk is monitored by the local structure and by the Group Risk department and the local Risk department can, if appropriate, participate in or develop projects with the partner. In all cases, risk is monitored by the Group Risk department. 5. FINANCIAL RISK MANAGEMENT The Group has not found it necessary to record impairment or value adjustments arising from the ﬁnancial crisis that began during the summer of 2007 as it has no direct or indirect exposure. It has no exposure to collateralised debt obligations (CDO), “monoline” insurers, commercial mortgage-backed securities (CMBS), subprime or ALT-A real-estate risk or exposure within ad hoc entities or to leveraged buy outs (LBO). During the usual course of its business, the Group is exposed to interest rate, foreign exchange, credit and liquidity risks. It uses derivative ﬁnancial instruments to mitigate these risks. The Group has implemented an organisation that enables centralised management of market risks (liquidity, interest rate and foreign exchange risk). See note 34 of the notes to the Financial Statements for a full description of ﬁnancial risk management, which is summarised below. 5.2 Liquidity risk The Group’s policy is to permanently maintain adequate medium and long-term funding to cover its needs at the bottom of the seasonal cycle and provide it with a safety margin. The medium and long-term bank ﬁnancing facilities contain the usual commitments and default clauses for this type of contract, i.e. undertaking to maintain the loan at its initial level of seniority (pari-passu), limits on the collateral provided to other lenders (negative pledge), limits on substantial asset sales, cross-default and material adverse change clauses. Groupe Auchan SA and Banque Accord’s Euro Medium Term Note (EMTN) programme, under which bonds are issued, contains an undertaking limiting surety provided to other bond holders (negative pledge) and a cross-default clause. None of the ﬁnancial borrowings include any commitment or default clause linked to any deterioration in the Group’s ratings. Some medium and long-term bank ﬁnancing facilities contain a “callability” clause in the event of non-compliance with the following ratio at the balance sheet date: net debt/EBITDA < 3.5. The Group complied with this ratio at 31 December 2007 and 2008. 5.1 Credit risk Operating activity The Group works solely with leading banks for ﬁnancing and interest rate and foreign exchange derivatives transactions. Counterparty risk is therefore not material. With regard to investments, the Group’s policy is to invest cash surpluses with counterparties with an A1 or P1 money-market management rating. Given the current background, these criteria were added to in the second half of 2008 by a stricter analysis of counterparty risk and the number of counterparties eligible for investments was reduced to 4 international banks. In addition, surplus cash is invested solely in bank money-market vehicles in euro. Trade receivables and other receivables excluding the credit activity do not involve any signiﬁcant risk. Speciﬁc activity of Banque Accord and its subsidiaries: credit activity and management of customer risk Banque Accord’s credit risk is managed and monitored by the subsidiaries or the partners’ Risk departments, the Group Risk depart- 5.3 Interest rate risk The Group uses interest rate derivatives with the sole aim of reducing its exposure to the impact of changes in interest rates on its debt. Transactions in the derivatives markets are carried out solely for hedging purposes. Auchan enters into interest rate transactions that qualify as fair value hedges (set in place on issuance of ﬁxedrate bank or bond loans) and interest-rate transactions that qualify as cash ﬂow hedges (with the aim of securing the ﬁnancial results over a maximum of 4 years). Some derivative ﬁnancial instruments that do not qualify as hedges, although put in place with a view to managing risk (the Group’s procedures do not allow speculative transactions) are recorded as instruments held for trading purposes and are therefore recognised at their fair value. 4 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original GROUP MANAGEMENT REPORT 5.4 Foreign exchange risk Auchan is exposed to foreign exchange risk on purchases, sales and loans denominated in a currency other than the euro and on the value of subsidiaries’ net assets in foreign currencies. At 31 December 2008, the main currencies concerned were the US dollar (USD), Polish zloty (PLN), Hungarian forint (HUF), Russian rouble (RUB), Taiwanese dollar (TWD) and Japanese yen (JPY). Foreign exchange derivatives are used to limit the impact of exchange rate ﬂuctuations on the Group’s foreign currency requirements and on the value of the net assets of some Group subsidiaries. Transactions in the derivative markets are entered into solely for hedging purposes. Foreign exchange transactions designed to hedge purchases of goods in foreign currencies, cover mainly EUR/USD risk. 12 month net asset hedges are also put in place to protect part of subsidiaries’ net assets in foreign currencies against foreign exchange risk. These hedges take the form of deliverable forward contracts or non-deliverable forwards when conventional forwards are not possible. 5.5 Other risks The Group does not enter into hedging transactions other than foreign exchange and interest rate derivatives transactions. 6. ENVIRONMENTAL POLICY AND CORPORATE SOCIAL RESPONSIBILITY Auchan is committed to ensure ethical behaviour, based on fair and just relations with customers, employees, suppliers and society, and a behaviour that respects the environment. A sustainable development synergy programme was launched in 2008. 6.1 Environmental policy Work focus 1/ Waste sorting and recycling Waste management: recycling and reutilisation policy. Waste management indicators were put in place. On average, more than 50% of waste is recycled (100% in the case of paper, cardboard and wood waste in China). Banque Accord France: switchover to electronic account statements. 100% “green” checkouts at Auchan Hypermarkets France; AuchanCity, ﬁrst retailer in Russia not to distribute disposable bags. Introduction of oxo-degradable and re-usable bags in Poland. Delivery of AlcampoDrive products in 100% recyclable and biodegradable cardboard boxes. Example of action taken in 2008 Reduction in distribution of bags at check-outs: “Green check-outs” without distribution of disposable bags and development of re-usable alternatives (Eco Simply cloth bag at Simply Market chain, biodegradable or oxo-degradable bags). 2/ Optimised use of natural resources Determined policy to reduce electricity consumption and use renewable energy: lighting management (low consumption systems) insulation, collection of heat generated by refrigeration systems and of rainwater, use of renewable energy sources (photovoltaic panels). Architectural integrations and enhanced green spaces. Training staff in and heightening their awareness of sustainable development issues. Development of low CO2 transport. River and rail transport favoured in addition to shipping for long-distance imports. Rail transport of fruit and vegetables from production areas to warehouses. Energy consumption indicators were introduced; electricity consumption was reduced by 3.7% at Auchan France and by 14% in China. Immochan set up Soleilimmo, a company that invests in and operates photovoltaic power plants. A “pilot” Simply Market store in Italy. A manual of good practices was published and circulated to all Sabeco staff. Two training courses were organised by Auchan France Auchan France signed the Mass retail and river transport (Grande distribution et transport ﬂuvial) agreement designed to seek alternatives to road transport. The Sabeco consumer products warehouse was transferred to Madrid, thereby reducing the number of trucks circulating between Madrid and Zaragoza by 800 3/ Developing an environmentally-friendly product range Active search for environmentally-friendly products produced using sustainable or organic production methods for distribution under the Auchan brand: Vida Auchan range (Portugal), “Productos ecologicos” and “Producción Controlada” (Spain), “Filiera Controllata” (Italy), and own-brand products under the “Mieux vivre Environnement” and “Mieux vivre Bio” brands in France. Development of an ecodesign approach to packaging of own-brand, valueline and bulk products. A “healthy food” section containing more than 300 organic and environmentally-friendly products was introduced in the Polish hypermarkets. Generalised introduction of “Organic” shelf space including the Auchanbrand organic products; an own-brand line of organic cosmetic products was launched in France. A range of 1,500 “health” and “Green food Auchan” products was launched in China. Packaging of Auchan and Pouce products has been reduced by 1,000 metric tonnes a year in France. A self-discount section (unpackaged products) introduced in 210 European hypermarkets. 2008 FINANCIAL REPORT AUCHAN 5 GROUP MANAGEMENT REPORT 6.2 Corporate social responsibility Work focus 1 – Workforce To develop stable employment. Average workforce during the year in full-time equivalent: 209,000 employees of whom 54% in Western Europe and 46% in other countries. 85% of employees have permanent contracts. 23,000 additional employees in 2008, of whom 15,100 in China and 5,700 in Central and Eastern Europe. Example of action taken in 2008 2 – Organisation of working hours Favour full-time employment. The number of full-time employees at hypermarkets was increased to 68%. In France, Auchan and Atac introduced the choice of full-time work, enabling part-time employees who wish to do so to become full-time. Risk prevention plan was drawn up following an external audit at Alcampo. Improve working conditions. 3 – Remuneration Implement a proﬁt-sharing policy: incentive and proﬁt-sharing schemes. Employee share ownership in 8 countries for the hypermarkets and property management activities (France, Spain, Italy, Portugal, Poland, Hungary, Luxembourg, China). Incentive scheme introduced at supermarkets in Spain. 32% of Auchan France’s income before tax, incentive schemes and proﬁt sharing was distributed to employees under proﬁt sharing and incentive schemes in 2008. Employee share ownership experimented in the Hypermarket activity in Russia. The Valaccord fund was set up for Banque Accord and subscribed to by more than 94% of its employees. 4 – Training Make training a priority: in-house training schools: product/business training (training schools for each profession: manager, sales staff, food trade, etc.) and sponsors. Develop partnerships with educational institutions to develop business training; take on apprentices and interns. 4.8 million hours of training was dispensed. A training centre was set up in Russia. E-learning was developed in all countries and introduced in Ukraine. Sabeco reached an agreement with the international business school, CESTE, in Spain. In Ukraine, a partnership was agreed with Kiev university to introduce a course for assistant departmental managers. Auchan France reached partnership agreements with more than 80 business and technical schools and universities in France. 5 – Social policy Integrate disabled workers. Initiatives included Atac Handicap programme, a partnership with Fondation Down in Spain. Sabeco reached a partnership with the “Empresa y Sociedad” (Enterprise and Society) foundation, which encourages corporate initiatives in favour of disadvantaged workers. The percentage of disabled workers exceeded the legal requirements in China and Spain. A partnership was initiated with the national agency for the disabled in Romania. Responsibility for medical centres in Romania. Health insurance was put in place in Ukraine. In France the Group participated in the aid committee ﬁnanced by businesses of the Nord region; beneﬁts paid to employees’ families. In Portugal, the Fondation Pão de Açúcar for employees and their families provided support for 900 projects, including the creation of ﬁve nursery schools. Ensure comprehensive social security cover, notably in Central and Eastern Europe, to enable employees to beneﬁt from health care. 6 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original Consolidated Balance Sheet at 31 December 2008 and 2007 ASSETS (in M€) Goodwill Other intangible assets Property, plant and equipment Investment property Investments in associates Customer loans - Credit activities Other non-current ﬁnancial assets Derivative ﬁnancial instruments (non-current) Deferred tax assets Note 15 16 17 18 19 20 21 2008 3,559 77 8,413 2,591 132 1,195 499 126 2007 3,394 59 7,871 2,282 152 1,129 471 44 88 22 148 Non-current assets Inventories Customer loans - Credit activities Trade receivables Current tax assets Other current receivables Derivative ﬁnancial instruments (current) Cash and cash equivalents Assets classiﬁed as held for sale 27 23 20 24 25 26 16,740 3,112 1,623 383 38 2,484 109 2,345 0 15,490 2,964 1,664 383 62 2,292 33 2,395 0 Current assets 10,094 9,793 Total ASSETS LIABILITIES (in M€) Share capital Share premiums Reserves and net income 26,834 Note 28 25,283 2007 629 1,844 4,288 2008 632 1,893 4,638 Equity attributable to equity holders of the parent Minority interests 28 7,163 120 6,761 137 Total equity Provisions Non-current borrowings and other ﬁnancial liabilities Debts ﬁnancing the credit activities Derivative ﬁnancial instruments (non-current) Other non-current liabilities Deferred tax liabilities 36 22 31 32 33 7,283 249 3,655 751 31 42 567 6,898 256 2,603 997 43 10 598 Non-current liabilities Provisions Current borrowings and other ﬁnancial liabilities Debts ﬁnancing the credit activities Derivative ﬁnancial instruments (current) Trade payables Current tax liabilities Other current liabilities Liabilities classiﬁed as held for sale 37 37 37 31 32 33 5,295 163 1,701 1,785 13 7,625 75 2,894 0 4,507 170 1,881 1,433 11 7,525 67 2,791 0 Current liabilities 14,256 13,878 Total LIABILITIES 26,834 25,283 2008 FINANCIAL REPORT AUCHAN 7 Consolidated income statement for ﬁnancial years 2008 and 2007 (in M€) Revenue Cost of sales Note 8 9 2008 39,484 (30,372) 2007 36,715 (28,214) Gross proﬁt Payroll expenses External expenses Depreciation, amortisation and provisions Other recurring operating income and expenses 11 10 9,112 (4,364) (2,433) (1,051) 53 8,501 (4,039) (2,282) (928) 52 Recurring operating income Other operating income and expenses 1,317 0 1,304 0 Operating income Income from cash and cash equivalents Gross cost of ﬁnancial debt Net cost of ﬁnancial debt Other ﬁnancial income and expenses 13 1,317 65 (273) (208) (6) 1,304 53 (209) (156) (6) Income before taxes Income taxes Share in earnings of associates 14 1,103 (349) (10) 1,142 (374) (6) Net income from continuing operations Net income from assets held for sale and discontinued operations 7 744 0 762 215 Net income of which attributable to minority interests of which attributable to equity holders of the parent 744 17 727 977 15 962 Earnings per share from continuing operations attributable to equity holders of the parent (in €) – basic – diluted 5 5 23.11 23.08 23.80 23.79 8 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original Consolidated statement of net cash ﬂows (in M€) Consolidated net income (including minority interests) Share in earnings of associates Dividends received (non-consolidated investments) Net cost of ﬁnancial debt Current and deferred taxes Net increase/decrease in depreciation, amortisation and provisions (other than on current assets) Income and expenses on share-based payment plans Other non-cash or non-operating items Capital gains/losses net of tax and negative goodwill Notes 2008 744 10 0 208 345 930 9 0 (38) 2007 977 6 0 156 380 812 4 0 (248) Cash ﬂow from operations before net cost of ﬁnancial debt and tax Income taxes paid Interest paid Other ﬁnancial items 2,208 (432) (256) 48 2,087 (367) (196) 40 Cash ﬂows from operations after net cost of ﬁnancial debt and tax Changes in working capital Changes in items relating to credit activities 41 41 1,568 (83) 78 1,564 1 (22) Net cash ﬂow from operating activities Acquisition of property, plant and equipment, intangible assets and investment property Proceeds from sale of property, plant and equipment, intangible assets and investment property Acquisition of shares in non-consolidated companies including associates accounted for by the equity method Proceeds from sale of shares in non-consolidated companies including associates accounted for by the equity method Acquisition of subsidiaries net of cash acquired(1) Sales of subsidiaries net of cash disposed of(1) Dividends received (non-consolidated companies) Changes in loans and advances 41 1,563 (2,022) 119 (70) 66 (216) 11 0 (68) 1,543 (1,671) 92 (136) 40 (64) 297 0 (10) Net cash ﬂows used in investment activities Sums received from shareholders on capital increases Purchases and sales of treasury shares Dividends paid during the ﬁnancial year Debt proceeds 41 41 41 (2,180) 54 (14) (192) 825 (1,452) 11 10 (203) 394 Net cash ﬂows used in ﬁnancing activities Effect of changes in foreign exchange rates(2) 673 50 212 (8) Change in net cash Net cash at beginning of period Net cash at end of period 27 27 106 1,854 1,960 295 1,559 1,854 Change in net cash (1) Including change in put options granted to minority shareholders. (2) Including, in 2008, the effect of the depreciation of Polish zloty for €32m, Hungarian forint for €11 million and Russian rouble for €8 million. 106 295 2008 FINANCIAL REPORT AUCHAN 9 Statement of changes in consolidated equity (before appropriation of net income) Total equity Consolidated reserves and net income 3,538 962 (5) 957 1 8 10 (199) 3 (1) (in M€) Balance at 01.01.2007 Net income of the period Income and expenses recognised directly in equity Total recognised income and expenses for the period Capital increases Treasury shares(2) Dividends Changes in consolidation scope and other changes Share capital 628 Share premiums(1) 1,836 Treasury shares (20) Attrib. to equity holders of the parent 5,982 962 (5) 957 8 10 (199) 3 Attrib. to minority interests 136 15 (3) 12 3 (4) (10) Total 6,118 977 (8) 969 11 10 (203) (7) Balance at 31.12.2007 Net income of the period Income and expenses recognised directly in equity Total recognised income and expenses for the period Capital increases Treasury shares(2) Dividends Changes in consolidation scope and other changes 629 1,844 (10) 4,298 727 (174) 553 6,761 727 (174) 553 46 137 17 5 22 8 0 (12) (35) 6,898 744 (169) 575 54 (14) (192) (38) 3 43 6 (20) (180) (3) (14) (180) (3) Balance at 31.12.2008 632 1,893 (30) 4,668 7,163 120 7,283 (1) Share premiums include premiums paid for stock issued, mergers and other capital contributions. (2) See note 28. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSES (in M€) Foreign currency translation differences(1) Change in fair value of ﬁnancial instruments: Available-for-sale ﬁnancial assets Net asset hedge Cash ﬂow hedge Actuarial gains and losses for deﬁned beneﬁt plans (net of taxes) 3 (1) (8) (8) (1) 6 (7) 10 2008 (155) 2007 (16) Income and expenses recognised directly in equity Net income for the period (169) 744 (8) 977 Total recognised income and expenses for the period Attributable to: Equity holders for the parent Minority interests 575 553 22 969 957 12 Total recognised income and expenses for the period (1) See note 28.5.1, for the detail by country (attributable to equity holders for the parent). 575 969 10 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original Notes to the consolidated ﬁnancial statements (in € million – M€) 12 12 Note 1 Note 2 GENERAL DESCRIPTION OF THE GROUP SIGNIFICANT EVENTS AND MAIN CHANGES IN THE CONSOLIDATION SCOPE ACCOUNTING RULES AND METHODS 40 23 25 26 26 Note 4 Note 5 Note 6 Note 7 SEGMENT REPORTING 40 EARNINGS PER SHARE 41 MAIN ACQUISITIONS OF EQUITY INTERESTS IN 2008 43 ACTIVITIES DISCONTINUED, SOLD OR IN THE PROCESS OF BEING SOLD AND ASSETS HELD FOR SALE REVENUE COST OF SALES PAYROLL EXPENSES DEPRECIATION, AMORTISATION AND PROVISIONS IMPAIRMENT OTHER FINANCIAL INCOME AND EXPENSES INCOME TAXES 58 29 30 32 34 35 37 37 38 40 Note 15 Note 16 Note 17 Note 18 Note 19 Note 20 Note 21 Note 22 Note 23 GOODWILL 59 OTHER INTANGIBLE ASSETS 60 PROPERTY, PLANT AND EQUIPMENT 61 INVESTMENT PROPERTY INVESTMENTS IN ASSOCIATES CUSTOMER LOANS - CREDIT ACTIVITY OTHER FINANCIAL ASSETS DEFERRED TAX ASSETS AND LIABILITIES INVENTORIES 61 61 62 63 64 Note 42 Note 43 Note 44 Note 45 Note 46 Note 41 DETAILS OF CERTAIN ITEMS OF THE CONSOLIDATED CASH FLOW STATEMENT POST-BALANCE SHEET EVENTS CONTINGENT LIABILITIES COMMITMENTS EMPLOYEES CONSOLIDATION SCOPE Note 40 INTERESTS IN JOINT VENTURES Note 39 TRANSACTIONS WITH RELATED PARTIES Note 38 LEASES 44 45 Note 30 Note 31 Note 32 SHARE-BASED PAYMENTS PROVISIONS BORROWINGS AND OTHER FINANCIAL LIABILITIES DEBTS FINANCING THE CREDIT ACTIVITY FINANCIAL INSTRUMENTS NET DEBT OTHER NON-CURRENT LIABILITIES TRADE PAYABLES, CURRENT TAX LIABILITIES AND OTHER CURRENT LIABILITIES Note 29 EMPLOYEE BENEFITS Note 28 TOTAL EQUITY Note 27 CASH AND CASH EQUIVALENTS 40 40 40 12 Note 3 Note 24 Note 25 Note 26 TRADE RECEIVABLES CURRENT TAX ASSETS OTHER CURRENT RECEIVABLES 27 27 27 27 28 28 28 Note 8 Note 9 Note 10 Note 11 Note 12 Note 13 Note 14 47 49 57 57 58 Note 33 Note 34 Note 35 Note 36 Note 37 2008 FINANCIAL REPORT AUCHAN 11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 GENERAL DESCRIPTION OF THE GROUP Note 3 ACCOUNTING RULES AND METHODS Groupe Auchan SA is a French limited company (société anonyme) and the holding company for the Auchan group. The Auchan group (hereinafter the “Group” or “Auchan”) is a food and general retailer. At 31 December 2008, the Group directly operated: • 468 hypermarkets (of which 462 fully consolidated or consolidated using the proportionate method and the remaining 6, in Romania, consolidated using the equity method), and • 726 supermarkets(1) ; in 12 countries and region (France, Spain, Italy, Portugal, Luxembourg, Poland, Hungary, Ukraine, Russia, Mainland China, Taiwan and Romania). The Group also manages 289 shopping centres with shopping malls and retail parks. Auchan has for many years also had its own banking subsidiary Banque Accord, which focuses on retail customers. Note 2 The ﬁnancial statements of Groupe Auchan SA were approved by the Executive Board on 4 March 2009. These ﬁnancial statements will not be deﬁnitive until approved by the Ordinary General Meeting of shareholders on 24 April 2009. 3.1 Statement of compliance In application of European regulation No. 1606/2002 of 19 July 2002, the consolidated ﬁnancial statements of Groupe Auchan SA have been prepared in accordance with IAS (International Accounting Standards)/IFRS (International Financial Reporting Standards) issued by the IASB (International Accounting Standards Board), and their interpretations as adopted by the European Union at 31 December 2008. The amendments to existing standards and interpretations for mandatory application as from 1 January 2008 did not have a material impact on the Group’s ﬁnancial statements. These amendments and interpretations, with no impact, are: Amendments to IAS 39 – Financial Instruments: Recognition and Measurement and IFRS 7 – Financial Instruments: Disclosures relating to the Reclassiﬁcation of Financial Instruments and IFRIC 11 – IFRS 2 – Group and Treasury Share Transactions. Standards, amendments to existing standards and interpretations whose application was not mandatory at 31 December 2008 have not been adopted in advance. The standards, amendments to existing standards and interpretations published by the IASB and adopted at European level but effective for ﬁnancial years starting after 1 January 2008 and which are likely to have an impact on the Group’s ﬁnancial statements are as follows: • IFRS 8 – Operating Segments, IAS 23 revised – Borrowing Costs, IAS 1 revised – Presentation of Financial Statements, the amendments to IAS 38 and IAS 16 for annual improvements to IFRS, the amendments to IAS 32 relating to puttable instruments and to IFRS 2 relating to vesting conditions and cancellations as well as IFRIC 13 – Customer Loyalty Programmes and IFRIC 14 – The Limit on a Deﬁned Beneﬁt Asset, Minimum Funding Requirements and their Interaction. The present ﬁnancial statements do not take into account the new standards, revised standards and interpretations issued by the IASB but not adopted by the European Union as at 31 December 2008 such as revised IFRS 3 – Business Combinations, IAS 27 – Consolidated and Separate Financial Statements, and IFRIC 12 – Service Concession Arrangements. The impact of these standards, revised standards and interpretations is currently being assessed. SIGNIFICANT EVENTS AND MAIN CHANGES IN THE CONSOLIDATION SCOPE In 2008, the Hypermarket network increased by 60 units and the Supermarket network by 18. • Organic growth continued at the hypermarkets division with 45 store openings: 7 in Western Europe, 10 in Central and Eastern Europe (including the ﬁrst 2 Auchan hypermarkets in Ukraine) and 28 in Asia. In term of external growth, Auchan acquired 3 hypermarkets (1 in Spain and 2 in Portugal) and ﬁnalised the purchase of the Ramstore chain from the Enka group: 12 stores adopted the Auchan City name in 2008 and the 13th will reopen under the Auchan name in 2009. • The supermarkets network increased by 6 stores in Western Europe and 12 in Central and Eastern Europe, including 10 in Russia, where the network doubled in 2008. On 26 November 2008, the Group increased its shareholding in the Romanian company, MGV Distri-Hiper, from 29% to 49%. On 18 December an agreement was signed to acquire the remaining 51%, subject to the approval of the Romanian authorities. At 31 December 2008, MGV Distri-Hiper operated 6 hypermarkets under the Auchan banner. The company was consolidated using the equity method in 2008. In the Middle East, in 2008 the Group reached an agreement with Nakheel to create a joint venture, HyperCorp LLC. In 2009, the Group will take a 10% stake in this last company, which will develop the Auchan chain in Dubai. (1) Excluding the Ukrainian Furshet supermarkets, which are 21% owned and consolidated using the equity method. 12 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3.2 Scope and methods of consolidation The ﬁnancial statements of companies directly or indirectly controlled by Groupe Auchan SA are consolidated using the full consolidation method. Control is considered to exist when the Group, owning 50% or less of the voting rights of a company, has the power to govern, directly or indirectly, the company’s strategy and operating and ﬁnancial policies so as to obtain a beneﬁt from its assets. The existence and effect of potential voting rights that are immediately exercisable or convertible are taken into account for determining control. The companies, over which Groupe Auchan SA directly or indirectly exercises signiﬁcant inﬂuence on management and ﬁnancial policies, without exercising control, are accounted for using the equity method. Where Groupe Auchan SA directly or indirectly shares joint control of a company (i.e. strategic and ﬁnancial decisions requiring the mutual consent of the partners), with a limited number of other shareholders under a contractual agreement, this entity is consolidated using the proportionate method. In China, the income statements of 18 hypermarkets referred to as “independent franchises”, together with the ﬁnancial statements of a company operating a hypermarket, have since 2001 been consolidated using the proportionate method, in accordance with the agreements linking these companies to the Group and to give a fair view of the Group’s business operations in this country. Consolidation is based on the ﬁnancial year to 31 December for all the entities included in the consolidation scope. The consolidated ﬁnancial statements include the ﬁnancial statements of acquired companies from the date on which control is transferred to the Group. Companies that are sold are consolidated up to the date control ceases. Intra-group transactions and balances between Group companies are eliminated on consolidation. These estimates assume the business is a going concern and are based on past experience and other factors considered reasonable in the circumstances and the information available at the time. These estimates may be revised if the circumstances on which they were based change or as the result of new information. The actual values may be different from the estimated amounts. The 2008 consolidated ﬁnancial statements were prepared taking into account the prevailing economic and ﬁnancial crisis and based on ﬁnancial market data available on the balance sheet date. The immediate effects of the crisis were taken into account, notably with regard to the valuation of assets such as customer loans. With regard to longer-term assets, such as intangible assets (goodwill), it was assumed that the crisis would be of limited duration. The value of these assets is determined each year based on the long-term economic outlook and based on management’s best estimate of future cash ﬂows in conditions of reduced visibility. 3.4 Foreign currency transactions Translation of the ﬁnancial statements of foreign subsidiaries The Group has no subsidiary operating in a hyperinﬂationary economy. The ﬁnancial statements of all entities that use a functional currency other than the euro are translated into euro using the following method: • balance sheet items, except for equity, which is maintained at the historical exchange rate, are translated at the exchange rate applicable on the balance sheet date, • income statement items are translated at the average exchange rate for the period, as long as this rate has not been called into question by signiﬁcant changes in the exchange rate, • cash flows are translated at the average exchange rate for the period. The foreign currency translation adjustment resulting from application of this method is recognised in equity under “Currency translation adjustments” and is recognised in the income statement on disposal of the investment concerned. In accordance with the option allowed under IFRS 1 – First-time Adoption of International Financial Reporting Standards, the Group decided to reclassify cumulative foreign currency translation adjustments as at 1 January 2004 under “Consolidated reserves”. Consequently, the “Foreign currency translation adjustments” line only records cumulative translation adjustments as from 1 January 2004. Goodwill and fair value adjustments resulting from a business combination with an activity whose functional currency is not the euro are considered as part of the subsidiary’s assets and liabilities. They are expressed in the functional currency of the acquired entity and translated into euro at the exchange rate applicable on the balance sheet date. Any resulting currency translation adjustments are recognised in consolidated equity. 3.3 Use of estimates The preparation of ﬁnancial statements under IFRS requires the use of estimates and assumptions that affect the amounts reported in the ﬁnancial statements, in particular with regard to the following items: • the period over which assets are depreciated, • the assessment of provisions and retirement beneﬁt obligations, • the values used for testing impairment, • the fair value of identiﬁable assets and liabilities in the context of business combinations. 2008 FINANCIAL REPORT AUCHAN 13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Recognition of foreign currency transactions Transactions denominated in foreign currencies are translated into euro at the exchange rate on the transaction date. Monetary assets and liabilities denominated in foreign currencies, hedged or not, are translated into euro at the exchange rate on the balance sheet date and the resulting exchange adjustments are recognised in income for the period. Foreign currency denominated non-monetary assets and liabilities valued at historical cost are translated at the exchange rate prevailing on the initial transaction date. Foreign currency denominated non-monetary assets and liabilities valued at fair value are translated at the exchange rate prevailing on the date the fair value was determined. Goodwill is measured as the excess of the cost of acquisition over the fair value of the Group’s share of the identiﬁable assets, liabilities and contingent liabilities of the acquired entity on the acquisition date. When the business combination agreement provides for an adjustment in the purchase price conditional upon future events, the Group takes the amount of this adjustment into account in the cost of the business combination if the adjustment is probable and can be reliably measured. The excess of the cost of the business combination over the Group’s share of the fair value of the identiﬁable assets and liabilities at the acquisition date is recorded under “Goodwill” as an asset in the consolidated balance sheet. Goodwill relating to an associate accounted for by the equity method is recorded under “Investments in associates”. Any negative goodwill is recognised immediately in the income statement. The Group has a period of one year from the date of acquisition to ﬁnalise the initial assessment of identiﬁable assets, liabilities and contingent liabilities. In accordance with IFRS 3 – Business Combinations, goodwill is not amortised but is tested for impairment at least once a year and more often if events or circumstances indicate that it may be impaired. Such events or circumstances relate to significant, adverse and lasting changes with an impact on economic conditions or on the assumptions and objectives retained at the acquisition date. Any signiﬁcant impairment loss is recognised in the income statement under “Other operating expenses”. The method used to test for impairment is described in note 3.13. 3.5 Consolidation of the ﬁnancial statements of the credit activity The ﬁnancial statements of Banque Accord and its subsidiaries and of Comfactor Commercio Factoring SpA, a captive factoring entity operating in Italy, are fully consolidated in the Group’s financial statements as follows: • assets and liabilities are allocated, according to their nature, to the relevant lines in the consolidated balance sheet, with customer loans recorded in a separate line on the asset side and the ﬁnancing of customer loans in a separate line on the liabilities side; • in the income statement, banking revenues are included in “Revenue”, banking expenses in “Cost of sales”, and net banking income in “Gross proﬁt”. 3.6 Goodwill The Group applies the purchase method for business combinations completed after 1 January 2004. Under this method, all the identiﬁable assets, liabilities and contingent liabilities of the acquired entity are measured and recognised at their fair value on the acquisition date using the revaluation method. In the absence of speciﬁc provisions in the standards, and by analogy with the accounting treatment under IFRS 3 – Business Combinations for acquisitions completed in stages by successive share purchases, the Group has decided to apply the revaluation method to all transactions involving entities under joint control. In the case of the acquisition of minority interests in a controlled company, the Group recognises the difference between the acquisition cost of the minority interests and the share of net assets acquired under goodwill without reassessing the value of the assets and liabilities acquired. 3.7 Other intangible assets In accordance with IAS 38 – Intangible Assets, acquired intangible assets are recognised in the balance sheet at cost, less any accumulated amortisation and impairment losses. Under existing accounting standards and their interpretations as at 31 December 2008, the Group has qualiﬁed its French commercial leases as intangible assets with an indefinite useful life. These assets are consequently not amortised. They are tested for impairment when events suggest a risk of impairment, and at least once a year. When their recoverable amount based on criteria applied at the time of acquisition falls below their carrying amount, an impairment loss is recognised (see note 3.13). 14 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For preparing the IFRS opening balance sheet, and in view of the difﬁculty of restating historical values, in particular on acquisition of the Docks de France Group, French commercial leases prior to 1 January 2004 and recognised in the Group’s balance sheet as intangible assets under French GAAP were reclassiﬁed as goodwill on an exceptional basis. Other intangible assets with a deﬁned useful life are amortised using the straight-line method over their expected useful lives. Acquired software and internally developed software that meet all the criteria set out in IAS 38 are capitalised and amortised over a useful life of 3 years. As an exception, ERP software is amortised over 5 years as it has a highly structuring role for the business and a functional and technical architecture with a longer probable useful life. Property, plant and equipment acquired before 1 January 1997 At 31 December 1996, following the acquisitions of Docks de France and Pão de Açúcar (Portugal) and with a view to greater consistency and coherence, the Group revalued its property, plant and equipment. Land, buildings and facilities used by the stores, head ofﬁces, warehouses, shopping centres and business parks were restated at their value in use instead of their net book value. The value in use was in general calculated based on the Group’s knowledge of the market. In some speciﬁc cases, it was valued on the basis of independent appraisals. Technical installations, machinery and equipment and other assets were recognised, for their gross amount, at acquisition cost, which after carrying forward previous depreciation, corresponded to their value in use. On ﬁrst-time adoption of IFRS, the Group elected to use this revaluation at fair value as the presumed cost at the revaluation date, i.e. 31 December 1996. Property, plant and equipment in existence at 1 January 1997 are depreciated as from the revaluation date. In particular, store, warehouse and shopping centre buildings are depreciated over a useful life of 20 years to take into account the age of these assets at the revaluation date. For ﬁxtures and ﬁttings of shopping centres in France and of stores, warehouses and shopping centres in Spain, revalued at 31 December 1996, the Group has decided to retain a useful life of 20 years as from the revaluation date given the speciﬁc situation of these assets. Property, plant and equipment of the Italian subsidiaries The revaluation of Rinascente’s food retailing division, of which almost 100% control was acquired on 17 December 2004, resulted in the revaluation of the property, plant and equipment and the reassessment of useful lives as at 31 December 2004. The new depreciation periods for buildings are of between 28 and 31 years for hypermarkets and shopping centres and between 22 and 31 years for supermarkets. 3.8 Property, plant and equipment Property, plant and equipment acquired since 1 January 1997 Property, plant and equipment are recorded at cost less cumulative depreciation and any cumulative impairment loss. Land is stated at cost less any impairment loss. The various components of an item of property, plant or equipment are recognised separately when their estimated useful lives, and thus their depreciation period are significantly different. The cost of an item of property, plant or equipment includes expenses that can be directly attributed to its acquisition but excludes borrowing costs. Subsequent costs are included in the carrying amount of an item of property, plant or equipment or recognised as a separate component, if appropriate, when it is probable that the Group will receive the future economic beneﬁts linked to the asset and if the cost of the asset can be measured reliably. All other maintenance costs are recognised as expenses for the period in which incurred. Property, plant and equipment are depreciated using the straight-line method, on a components basis, from the date on which they are brought into service over their useful lives with no residual value. Buildings (structure) Roof waterprooﬁng, drainage and ﬂoor covering Fixtures and ﬁttings Technical installations, machinery and equipment Other assets 30 years 20 years 6 years 2/3 and 8 years 3 to 8 years 3 to 5 years 3.9 Investment property Investment property is property held as a source of rental income or appreciation of capital or both. Investment property is recorded on a separate line on the asset side of the balance sheet. The Group classiﬁes shopping centres, retail parks and undeveloped land as investment property. 2008 FINANCIAL REPORT AUCHAN 15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Investment property is measured at cost less accumulated depreciation and any impairment loss, in the same way as property, plant and equipment. Property under construction for future use as investment property is classiﬁed as property, plant and equipment until completion of the construction, when it is reclassiﬁed as investment property. In accordance with IAS 40, the fair value of investment property at 31 December 2008 is provided in note 18. The value is determined based partly on independent appraisals and partly on internal appraisals. These last consist of applying a capitalisation rate to the annualised net rental income generated by each shopping centre and retail park according to the country, location and size of the buildings concerned. A lease is qualiﬁed as a ﬁnance lease if it transfers virtually all the risks and beneﬁts of ownership of the asset to the lessee. All other leases are classiﬁed as operating leases. Assets leased by the Group under ﬁnance leases are recognised in property, plant and equipment at the lower of fair value and present value of the minimum lease payments, and a liability in the same amount is recorded in debt. The asset is then depreciated according to the depreciation rules applied to property, plant and equipment, or over the term of the lease if this is shorter. The related liability is written off according to the maturity schedule set when the lease was put in place, calculated based on a ﬁxed effective annual interest rate applied to the outstanding balance for each period. In parallel, assets with regard to which the risks and beneﬁts incidental to ownership have been transferred by the Group to a third party under a lease are considered as having been sold. 3.10 Recognition of entry fees received from lessees of shopping centres and retail parks – Lease contracts In accordance with IAS 17 – Leases, the ﬁnancial impact of all the terms and conditions set out in the lease are spread over the ﬁxed duration of the lease as from the date on which the premises are made available. This applies to the entry fees received. 3.13 Impairment of assets IAS 36 – Impairment of Assets defines the procedures to be followed by a company to ensure that the carrying amount of its property, plant and equipment, and intangible assets including goodwill, does not exceed their recoverable amount, namely the amount which will be recovered through their use or disposal. The recoverable amount of an asset is deﬁned as the higher of its fair value less costs to sell and its value in use. Fair value less costs to sell is deﬁned as the amount obtained from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties less the costs of disposal. Value in use is the present value of the future cash ﬂows expected to be derived from continuing use of an asset and from its ultimate disposal. Cash ﬂows after tax are estimated based on three-year forecasts. Cash flows beyond this period are extrapolated by applying a steady growth rate over a period corresponding to the asset’s estimated useful life. For testing impairment of assets in a given country (including goodwill), cash ﬂows are extrapolated over a period of 9 years, taking into account an end value calculated by discounting year 9 data to inﬁnity. For reasons of prudence, the terminal value is limited to 15 times cash ﬂows for year 9. Cash flows are discounted using the weighted average cost of capital after tax, plus a risk premium speciﬁc to each country. Discount rates after tax vary between 7.34% for Western Europe and 11.08% for Ukraine, versus 6.82% to 10.38% respectively in 2007. 3.11 Recognition of eviction indemnities paid to lessees of shopping centres and retail parks If the lessor terminates a running lease, the lessor must pay an eviction indemnity to the tenant concerned. This indemnity is recognised in the cost of the asset if the payment leads to a change in the asset’s performance (new lease on better ﬁnancial terms or recovery of the premises for extension works or the transfer of the former tenants to a new site). In all other cases, the eviction costs are recognised as prepaid expenses and spread over the residual term of the lease. 3.12 Finance leases The Group’s leases are recorded in accordance with IAS 17 – Leases which makes a distinction between finance leases and operating leases, and in application of IFRIC 4 – Determining whether an Arrangement Contains a Lease which describes the circumstances under which contracts that do not have the legal form of an operating lease must nonetheless be recognised as such, in accordance with IAS 17. 16 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The recoverable value of property, plant and equipment and intangible assets (including goodwill) is tested for impairment as soon as there is any indication of a loss of value. This test is also performed annually (in practice on 31 December 2008 given the seasonal nature of the business) for assets with an indeﬁnite life (goodwill and lease rights). Assets to be tested for impairment are grouped within cash-generating units (CGUs). The CGU corresponds to the smallest identiﬁable group of assets whose continuing use generates cash inﬂows that are largely independent of the cash ﬂows from other groups of assets. The Group has deﬁned stores (hypermarkets or supermarkets) and shopping centres as CGUs. An impairment loss is recognised when the carrying amount of an asset, or of the CGU to which it belongs, exceeds the recoverable amount. Goodwill is tested by country and business, and the CGU assets then include property, plant and equipment, intangible assets, goodwill allocated to the country and to the business, and working capital. Any impairment loss is allocated in priority to goodwill. Impairment losses on goodwill cannot be reversed. Impairment losses recognised for other assets are reversed if there has been a change in the estimates used to determine the asset’s recoverable amount. The increased carrying amount of an asset attributable to a reversal of impairment loss may not exceed the carrying amount that would have been determined had no impairment loss been recognised. A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations. An operation is classiﬁed as discontinued when it meets the criteria to be classiﬁed as held for sale or when Auchan has sold the entity. Discontinued operations are shown on a single line of the income statement, comprising the total of the post-tax income or loss up to the date of sale, and the post-tax gain or loss recognised on the disposal, for all reporting periods published. 3.16 Financial assets and liabilities Financial assets and liabilities are recognised and measured in accordance with IAS 39, IAS 32 and IFRS 7 using the following accounting methods and valuation rules: Trade receivables, trade payables and other current liabilities These ﬁnancial assets and liabilities are measured at their nominal value, as this represents a reasonable estimate of their fair value given their short-term nature. Trade receivables are recognised net of any impairment loss recorded in the event of a risk of non-recovery. Available-for-sale ﬁnancial assets Available-for-sale ﬁnancial assets notably include participating interests in non-consolidated entities. They are measured at fair value. Changes in fair value are recognised in equity under “Reserves of available-for-sale ﬁnancial assets”, and are transferred to proﬁt and loss when the asset is sold. If testing for impairment shows any material or lasting loss in value relative to the acquisition price, an impairment loss is recognised in the income statement. Impairment losses can only be reversed when the assets are sold. For listed securities, the fair value is the last quoted stock market price. For unlisted securities, fair value is determined based on the Group’s share in the company’s net asset value (adjusted if necessary), its capital value and earnings outlook or its appraisal value. If the fair value cannot be reliably determined, shares are recognised at cost. If there is objective evidence of lasting impairment, an irreversible impairment loss is recognised in the income statement. 3.14 Borrowing costs Borrowing costs are recognised when incurred in accordance with the recommended treatment under IAS 23 – Borrowing Costs. 3.15 Non-current assets (or groups of assets) held for sale and discontinued operations In accordance with IFRS 5, signiﬁcant assets or groups of assets held for sale (other than current sales) are recognised on separate asset and liability lines in the balance sheet with no restatement of previous years, and are stated at the lower of their carrying amount and fair value net of disposal costs. Non-current assets appearing in the balance sheet as held for sale are no longer depreciated once they are presented as such. An asset is classiﬁed as “held for sale” only if its sale is highly probable within 1 year, if the asset is available for immediate sale in its present condition and a programme to locate a buyer has been initiated by management. 2008 FINANCIAL REPORT AUCHAN 17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Loans and receivables This heading includes mainly receivables linked to non-consolidated shareholdings, guarantee deposits, prepaid expenses and other loans and receivables. Assets are initially measured at fair value and then at amortised cost using the effective interest rate method. The fair value of loans and receivables is estimated based on the present value of the expected cash flows discounted using the zero-coupon curves at the financial year end, and integrating a spread determined by the Group. For guarantee deposits and other loans, the carrying amount represents a reasonable estimate of fair value. An impairment loss is recognised if there is any probability that the total contractual amount (principal and interest) will not be recovered. The impairment loss recognised in the income statement corresponds to the difference between the carrying amount of the asset and its recoverable amount. If the recoverable amount of the asset increases subsequently as the result of an event occurring after the impairment loss was recognised, the impairment loss is reversed. However, an impairment loss may be reversed only to the extent that the asset’s carrying amount does not exceed the amortised initial cost that would have been determined had no impairment loss been recognised. Financial assets held for trading Financial assets held for trading consist of units in money-market funds. These assets are measured at their market value based on the last quotation given by the bank. Any changes in fair value are recognised in the income statement. Held-to-maturity investments This item consists mainly of customer loans (principally consumer credit in the form of personal loans and revolving credit) granted by Group ﬁnancial companies and credit institutions. They are recognised at amortised cost. At each balance sheet date, the Group determines whether there is objective evidence of impairment resulting from one or more events occurring after initial recognition of the asset, and whether these loss events have an impact on the estimated future cash ﬂows that can be reliably estimated. If there is objective evidence that a loan or receivable is impaired, the impairment loss is measured as the difference between the carrying amount of the asset and the present value (discounted using the original contract rate) of recoverable estimated future cash ﬂows, taking any guarantees into account. The impairment loss is recognised in proﬁt or loss, and the value of the ﬁnancial asset is reduced by the same amount. Cash and cash equivalents This item comprises cash in hand and current accounts at banks that are not subject to any restrictions. It also includes short-term ﬁnancial assets (less than 3 months) that are readily convertible to known amounts of cash and which are subject to an insigniﬁcant risk of changes in value. As these assets are immediately realisable or transferable, they are measured at fair value. Any change in value is recognised in proﬁt or loss. Borrowings and other ﬁnancial liabilities, debts ﬁnancing the credit activity The Group’s ﬁnancial liabilities consist mainly of bonds, bank borrowings, bank overdrafts and obligations under ﬁnance leases. Borrowings and other ﬁnancial liabilities at ﬂoating rates are measured at amortised cost based on straight-line amortisation of issuance costs as this has no material impact by comparison with the yield-to-maturity method. Two methods are used for ﬁxed-rate borrowings: • fixed-rate borrowings qualified as hedged items as part of fair value hedging relationships are recognised at amortised cost adjusted for the change in fair value for the hedged risk. The fair value is determined on the basis of expected future cash ﬂows discounted using the zero-coupon curves at the balance sheet dates, and integrating a spread equal to the spread when the ﬁnancing was set up; • other fixed-rate borrowings are recognised at amortised cost using the effective interest method, which integrates an actuarial amortisation of issuance costs and premiums. Liabilities under ﬁnance leases are recognised at amortised historical cost. Their fair value is determined by discounting future cash ﬂows. Derivative instruments The Group uses ﬁrm or optional ﬁnancial instruments qualiﬁed as derivative instruments under IAS 39 to hedge its exposure to market risk (interest rate, exchange rate and equity risk). Derivative instruments are measured and recognised at fair value. The fair value is determined based on the values published by the bank counterparties. Changes in the fair value of derivatives are always recognised in the income statement unless they form part of cash ﬂow hedges. For derivatives eligible for hedge accounting, recognition as hedging instruments makes it possible to reduce income volatility linked to changes in the value of the derivatives concerned. 18 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Hedge accounting can be applied if: • the hedging relationship is clearly deﬁned and documented at the date when it is set up, • the effectiveness of the hedging relationship is demonstrated from the outset, and regularly throughout the duration of the hedge. IAS 39 provides for 3 types of hedging relationship: fair value hedge, cash ﬂow hedge and hedge of a net investment in a foreign operation. Most of the derivatives used by the Group are eligible for hedge accounting. • For derivatives documented as hedges of assets or liabilities recognised in the balance sheet (fair value hedge), hedge accounting makes it possible to recognise changes in the fair value of the derivatives in the income statement. This is offset by the impact on income of the changes in the fair value of the hedged item recognised in the balance sheet, in connection with the risk hedged. These 2 values offset each other on the same line in the income statement and cancel each other out if the hedge is completely effective. • For derivative instruments documented as hedges of highly probable future cash ﬂows, changes in the value of the derivative are recognised in reserves (cash ﬂow hedge reserve) for the effective portion. These reserves are transferred to the income statement at the same time as the transaction. Changes in the value of the estimated ineffective portion are recognised in the income statement. • For derivatives documented as hedges of net investments in foreign operations, the change in the value of the hedging instrument is recognised in equity, the purpose of these hedges being to neutralise the change in value in euro of part of the net foreign currency assets of subsidiaries. In the case of derivatives that are not documented as hedging instruments, any change in the fair value is recognised in the income statement. Derivative instruments with an initial maturity of more than 1 year are recorded in the balance sheet as non-current assets or liabilities. Other derivative instruments are recorded as current assets or liabilities. Pending clariﬁcation of the IFRS standards, the Group has adopted the following accounting treatment: • as provided for in IAS 32, the Group recognises a ﬁnancial liability in respect of the put options granted to minority shareholders of the entities concerned at the present value of the exercise price; • the contra to this liability is deducted from minority interests and the balance from goodwill; • if the repurchase undertaking was not granted in the context of a business combination (excluding creation of new activities), subsequent changes in the debt are recognised in ﬁnancial income and expenses. If granted in the context of a business combination or on creation of a new business, the put options are recognised through an adjustment to goodwill. The impact of discounting is recognised in income or loss. However, these accounting methods may have to be reviewed upon clariﬁcation of the IFRS standards. 3.18 Inventories Inventories are measured at the lower of cost and net realisable value. The cost is net of annual rebates and commercial cooperation fees and includes handling and warehousing costs directly attributable to acquisition of the products, and the transport costs incurred in bringing the products to the stores. Inventories are valued either on the basis of the last purchase price, a method similar to the FIFO (“First in, First out”) method for rapidly moving stocks, or at the weighted average unit cost, or at the selling price less the profit margin. Inventories are written down if their net realisable value is below cost. 3.19 Income tax Income tax includes current and deferred taxes, and tax adjustments in respect of prior years. Income tax, both current and deferred, is recognised directly in equity when it relates to an item initially recognised in equity. Deferred taxes are recorded on all temporary differences between the tax basis of assets and liabilities and their accounting values, with the exception of goodwill not deductible for tax purposes and temporary differences relating to investments in subsidiaries to the extent that they will not be reversed in the foreseeable future. Deferred taxes are calculated based on the tax rate that applies or is almost certain to apply on the balance sheet date, using the liability method. The effect of any change in the tax rate is recognised in the income statement, apart from changes relating to items initially recognised directly in equity. 3.17 Put options granted to minority shareholders of controlled companies The Group has given a commitment to the minority shareholders of some fully-consolidated companies to buy out their interests. The exercise price may be ﬁxed or based on a pre-deﬁned calculation formula. These options may be exercised at any time or on a predetermined date. 2008 FINANCIAL REPORT AUCHAN 19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets and liabilities are offset when offsetting is legally allowed and the same tax authority is involved. They are not discounted and are recorded in the balance sheet under non-current assets and liabilities. Tax losses and other temporary differences only give rise to deferred tax assets when they are likely to be used against future taxable income within a reasonable period of time or when they can be attributed against deferred tax liabilities. • determination of the fair value of the option on the grant date using an option pricing model; • application of a probability ratio according to speciﬁc conditions of presence. A corresponding amount is recorded under debt if Groupe Auchan SA or any of its subsidiaries have undertaken to repurchase the shares; the expense is spread over the period during which the employees acquire deﬁnitive vesting rights. The fair value of the option is a call value determined using the binomial model on the basis of the following elements: • life of the option (set in the option plan); • the exercise price; • the interest rate (the rate adopted is the 4-year French Treasury bond or OAT rate); • the share price on the grant date; • the volatility of the sector (if the underlying shares are not listed). The value of the underlying shares includes the impact of dividends paid. 3.20 Provisions Provisions are recorded when, at the balance sheet date, the Group has an obligation to a third party as a result of a past event and this obligation is likely or certain to result in an outﬂow of resources representing economic beneﬁts and their amount can be reliably estimated. The obligation may be legal, regulatory or contractual. Provisions are estimated according to their nature based on the most probable assumptions. Provisions for restructuring are recognised when the Group has a detailed formal plan to restructure and it has been communicated to the interested parties. Some Group companies offer warranty extension contracts, for which revenue and margin are recognised over the period of the service delivered. Foreseeable costs relating to the warranty are accrued when the corresponding sales are recorded, based on prior year cost data. Provisions linked directly to the normal operating cycle of the business, and the portion of other provisions that matures in less than 1 year, are classified as current liabilities. Provisions that do not meet these criteria are classiﬁed as non-current liabilities. 3.23 Retirement and other long-term employee beneﬁts As required under IAS 19 – Employee Beneﬁts, the Group lists and records all beneﬁts granted to employees. The Group has set up pension plans for employees in accordance with the laws and practices of each country. The obligations arising from deﬁned beneﬁt plans are determined using the projected unit credit method. The larger plans are assessed each year by independent actuaries and other plans are assessed regularly. The actuarial assumptions used to determine the obligations vary according to the speciﬁc characteristics of each company (staff turnover rate, wage increases) and the economic conditions in the countries where the plans are operated (discount rate and inﬂation). These plans can be funded, in which case their assets are managed separately and independently from those of the Group, or nonfunded. For non-funded deﬁned beneﬁt plans, the liability recognised in the balance sheet corresponds to the present value of the obligations adjusted for unrecognised past service costs. Past service cost, i.e. the change in the obligation resulting from introduction of a new 3.21 Treasury shares All treasury shares held by the Group are deducted from equity at cost. The gain or loss, net of tax, from any sale of treasury shares is recognised in equity, so that any gains or losses on disposal have no impact on income for the period. 3.22 Share-based payments IFRS 2 – Share-Based Payments requires an entity to recognise an expense when it grants share options to employees. The amount of this expense is calculated as follows: 20 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS plan or changes to an existing plan is spread over the remaining period until the amended beneﬁts are vested or expensed immediately if the employees are already vested. For funded deﬁned beneﬁt plans, the deﬁcit or surplus of the fair value of the assets compared with the present value of obligations is recognised as a liability or asset in the balance sheet, adjusted for unrecognised past service costs. However, a surplus can only be recognised in the balance sheet to the extent that it represents future economic beneﬁts that are effectively available to the Group. If these assets are not available, or do not represent future economic benefits, the amount of assets recognised in the balance sheet is limited. Actuarial gains and losses can result from changes in assumptions or from experience differences between estimated results based on actuarial assumptions and actual results. The Group has adopted the amendment to IAS 19 – Employee beneﬁts: Actuarial gains and losses, Group plans and disclosures, recognising all actuarial gains and losses immediately in equity. For deﬁned beneﬁt plans, the actuarial expense recognised in the income statement comprises the current service cost (recognised in payroll expenses), the interest cost, the expected yield on plan assets and the past service costs recognised in the period. The cost of discounting and the expected yield on plan assets are recognised under other ﬁnancial income and expenses. Some beneﬁts are also provided through deﬁned contribution plans through periodic contributions to external bodies responsible for the administrative and ﬁnancial management of the plans. Contributions to these plans are expensed as incurred. weighted average number of outstanding shares plus potentially dilutive shares to be created. For the Group, this concerns share purchase and subscription options and bonus share plans. The dilution linked to these options is determined using the share purchase method. In the event of non-current items that could impair the understanding of earnings per share, the Group calculates earnings per share based on income from continuing activities excluding non-current items by adjusting net income attributable to the equity holders of the parent for other operating income and expenses after tax and minority interests. 3.25 Segment reporting IAS 14 requires the reporting of ﬁnancial information by line of business and geographic area according to primary and secondary levels. Segments are identiﬁed by analysing risks and returns to form homogeneous segments. For the Group, segment data is presented by business activity for the primary level and by geographic area for the secondary level. This presentation is based on the Group’s internal organisation and management structure. The two segments cover the following: Primary – activity: Hypermarkets (this division includes Alinéa and the new online and drive-in formats as well as the Furshet supermarkets in Ukraine, consolidated using the equity method), Supermarkets, Property Management (shopping centres and retail parks), Banking (credit activity). Secondary – geographic area: France, Western Europe other than France (Spain, Portugal, Italy and Luxembourg), and the rest of the world (Poland, Hungary, Russia, Ukraine, China, Taiwan and Romania). Segment assets are assets used by a segment in connection with its operational activities and which are directly attributable to the segment, or which can reasonably be allocated to the segment. Segment assets comprise: goodwill, other intangible assets, property, plant and equipment, investment property, investments in associates, current and non-current customer loans, inventories, trade receivables and other current receivables. Segment liabilities are liabilities resulting from the operational activities of a sector and which are directly attributable or can reasonably be allocated to the segment. Segment liabilities comprise: current and non-current provisions, current and non-current debts ﬁnancing the credit activity, other current liabilities and trade payables. 3.24 Earnings per share The Group presents basic earnings per share and diluted earnings per share, calculated based on income from continuing activities. This information is also presented for net income. Basic earnings per share are calculated by dividing net income (attributable to equity holders of the parent) for the year by the weighted average number of shares outstanding during the year, less treasury shares. The average number of outstanding shares during the year is the number of outstanding shares at the beginning of the year adjusted by the number of shares issued during the year. Diluted earnings per share are calculated by dividing net income (attributable to equity holders of the parent) for the year by the 2008 FINANCIAL REPORT AUCHAN 21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Gross investment in intangible assets and property, plant and equipment corresponds to gross acquisitions of non-current assets, excluding the impact of deferred payments and including long-term investments held under ﬁnance leases. 3.26 Presentation of ﬁnancial information 3.26.1 Income statement Revenue Net sales include sales of goods and services by the stores, rental revenues from shopping centres and retail parks, and banking revenues from the credit activity. Other income includes franchise revenues, entry fees collected by the shopping centres and retail parks, commissions for the sale of services and warranty extension premiums. Gross proﬁt The “Cost of sales” comprises the cost of purchases net of discounts and commercial cooperation fees, changes in inventories net of any impairment loss, logistic costs, cash discounts, exchange gains and losses on the purchase of goods, and banking expenses for the credit activity. Pre-opening costs Store pre-opening costs are expensed in the income statement when incurred. Other operating income and expenses Non-recurrent transactions involving signiﬁcant amounts and which could impair the understanding of operating performance are recorded under “Other operating income and expenses”. This line includes in particular impairment recognised on goodwill, major and exceptional impairment losses recognised on other assets, and items that are exceptional, rare and material and unrelated to ordinary operations, such as restructuring expenses. Net cost of ﬁnancial debt The net cost of ﬁnancial debt comprises: • the gross cost of ﬁnancial debt, which includes interest expenses and gains and losses on interest rate and foreign exchange hedges covering the debt; • “Income from cash and cash equivalents”, which includes income from short-term cash investments. Other ﬁnancial income and expenses This heading comprises ﬁnancial income and expenses that is not included in the net cost of debt. It consists mainly of dividends from non-consolidated companies, gains and losses arising from the measurement at fair value of ﬁnancial assets other than cash and cash equivalents, gains and losses on the disposal of financial assets other than cash and cash equivalents, the impact of discounting adjustments and exchange gains and losses on items not included in net debt and cost of sales. 3.26.2 Balance sheet Assets and liabilities involved in the normal cycle of operations are classiﬁed as current items. Other assets and liabilities are classiﬁed as current or non-current depending on whether their expected date of recovery or payment is within 12 months from the balance sheet date. 3.26.3 Deﬁnition of net debt The Group deﬁnes net debt as gross ﬁnancial debt less net cash. Gross debt comprises current and non-current borrowings and other ﬁnancial liabilities, derivative ﬁnancial instruments (current and non-current assets and liabilities) and the related accrued interest. In accordance with IAS 7, the net cash whose movements are presented in the statement of cash ﬂows, comprises cash and cash equivalents not subject to any restrictions, and short-term investments (less than 3 months) that are readily convertible to known amounts of cash and which are subject to an insigniﬁcant risk of changes in value, less bank overdrafts. Accrued interest relating to items comprised in net cash and gross debt are included in net debt. Net debt does not include the ﬁnancing of customer loans at the credit activity. 3.26.4 Statement of cash ﬂows The Group determines cash ﬂows from operating activities using the indirect method. 22 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 4 SEGMENT REPORTING The ﬁnancial data reported as segment information are prepared using the same accounting rules and methods as those used for preparing the consolidated ﬁnancial statements. The performance of each business is measured based on recurring operating income. 4.1 Segment information by business activity Segment revenue and income (in M€) External revenue Inter-segment revenue Hypermarkets 2008 31,760 688 Supermarkets 2008 6,865 101 Property management 2008 432 12 Banking 2008 427 22 Holding and other 2008 0 5 Eliminations 2008 0 (828) Group Total 2008 39,484 0 2007 29,292 658 2007 6,670 78 2007 383 10 2007 370 22 2007 0 2 2007 0 (770) 2007 36,715 0 Revenue Recurring operating income Other operating income and expenses Operating income Net ﬁnancial expenses Income taxes Share in earnings of associates Net income from continuing operations Net income from assets held for sale and discontinued operations 32,448 29,950 6,966 6,748 444 393 449 392 5 2 (828) (770) 39,484 36,715 (1) (1) (1) (1) 212 202 29 60 44 43 0 0 1,317 1,304 0 1,317 (214) (349) 0 1,304 (162) (374) (10) (6) 744 762 0 215 Net income (1) Recurring operating income from the Hypermarket and Supermarket segments: 2008: €1,032 million; 2007: €999 million. 744 977 2008 FINANCIAL REPORT AUCHAN 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Hypermarkets Segment assets and liabilities (in M€) Segment assets of which investments in associates Unallocated assets Supermarkets 2008 3,831 Property Management 2008 2,922 Banking 2008 2,668 Holding and others 2008 12 Group total 2008 23,569 2008 14,136 2007 13,164 2007 3,632 2007 2,748 2007 2,629 2007 17 2007 22,190 89(1) 90(1) 2 2 41 54 0 5 0 0 132 3,265 152 3,093 Total assets Segment liabilities Unallocated liabilities 8,817 8,625 1,818 1,764 352 433 2,141 1,920 339 430 26,834 13,467 13,367 25,283 13,172 12,111 Total liabilities (1) Including interest in Furshet supermarkets in Ukraine (see note 3.25). 26,834 25,283 Other information (in M€) Investments: Intangible assets(a) Property, plant and equipment Investment property Depreciation and amortisation allowance Impairment losses on intangible assets, property, plant and equipment and investment property Reversal of impairment losses on intangible assets, property, plant and equipment and investment property Other non-cash operating income and expenses(2) Hypermarkets 2008 2007 Supermarkets 2008 2007 Property Management 2008 2007 Banking 2008 2007 Holding and others 2008 2007 Group total 2008 2007 (1) (1) (1) (1) 0 28 357 133 1 183 227 118 1 3 0 4 1 2 0 3 0 0 0 0 0 0 0 0 50 1,615 461 929 38 1,486 234 859 (1) (1) (1) (1) (1) (1) (1) (1) 619 587 173 151 1 1 2 3 2 0 0 0 0 0 5 4 5 32 6 24 2 10 2 3 1 7 2 7 0 64 0 37 0 0 0 (3) 8 113 10 68 (1) Investments in the Hypermarkets and Supermarkets segments: 2008: €1,737 million; 2007: €1,344 million. (2) Signiﬁcant expenses: allowance to/reversals of provisions other than impairment on intangible assets, PP&E and investment property (mainly relating to impairment of current assets and customer loans and provisions for risk and contingent liabilities). (a) Including acquisitions of business goodwill recognised in goodwill in an amount of €4 million. 24 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4.2 Segment information by geographic area The data by geographic area are presented based on the location of the customers in the case of revenue and on the location of the assets in the case of segment assets. Western Europe excluding France 2008 11,697 8,745 France (in M€) Revenue Segment assets Investments (intangible assets, property, plant and equipment and investment property)(a) Rest of the world 2008 8,544 4,278 Eliminations 2008 (433) 0 Group total 2008 39,484 23,569 2008 19,676 10,546 2007 19,060 10,272 2007 11,223 8,484 2007 6,818 3,434 2007 (386) 0 2007 36,715 22,190 695 563 627 623 804 572 0 0 2,126 1,758 (a) Including acquisitions of business goodwill recognised in goodwill. Note 5 EARNINGS PER SHARE 5.1 Calculation of the weighted average number of shares 2008 Number of outstanding shares at 1 January Number of treasury shares at 1 January Weighted average number of share subscription options exercised Weighted average number of other capital increases Weighted average number of treasury shares acquired Weighted average number of treasury shares sold or cancelled Weighted average number of capital reductions (by cancellation of treasury shares) 31,445,258 (33,611) 0 75,940 (46,532) 22,703 0 2007 31,419,437 (69,793) 0 14,535 (370) 18,318 0 Weighted average number of outstanding shares (excluding treasury shares) used for the calculation of basic earnings per share Potentially dilutive shares to be created (share purchase or subscription options, allocation of bonus shares) 31,463,758 33,927 31,382,127 11,944 Weighted average number of outstanding shares (excluding treasury shares) used for the calculation of diluted earnings per share 31,497,685 31,394,071 2008 FINANCIAL REPORT AUCHAN 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5.2 Calculation of earnings per share Basic earnings per share Weighted average number of outstanding shares: Net income attributable to equity holders of the parent (in M€) Per share (in €) Net income from discontinued operations attributable to equity holders of the parent (in M€) Per share (in €) Net income from continuing operations attributable to equity holders of the parent (in M€) Per share (in €) Net income from continuing operations attributable to equity holders of the parent, excluding other operating income and expenses (in M€) Per share (in €) 2008 31,463,758 727 23.11 0 0.00 727 23.11 727 23.11 2007 31,382,127 962 30.65 215 6.85 747 23.8 747 23.8 Diluted earnings per share Weighted average number of diluted shares: Net income attributable to equity holders of the parent (in M€) Per share (in €) Net income from discontinued operations attributable to equity holders of the parent (in M€) Per share (in €) Net income from continuing operations attributable to equity holders of the parent (in M€) Per share (in €) Net income from continuing operations attributable to equity holders of the parent, excluding other operating income and expenses (in M€) Per share (in €) 2008 31,497,685 727 23.08 0 0.00 727 23.08 727 23.08 2007 31,394,071 962 30.64 215 6.85 747 23.79 747 23.79 Note 6 MAIN ACQUISITIONS OF EQUITY INTERESTS IN 2008 The main acquisition of equity interest acquired in 2008 was the acquisition on 9 April of 100% of the 12 Ramstore hypermarkets in Russia (reopened under the Auchan City banner) from the Enka Group. This transaction generated provisional goodwill of €168m as at the acquisition date. The other equity interests acquired by the Group in consolidated subsidiaries have no material impact on the consolidated ﬁnancial statements. Note 7 ACTIVITIES DISCONTINUED, SOLD OR IN THE PROCESS OF BEING SOLD AND ASSETS HELD FOR SALE No activity was discontinued or sold in 2008. Neither was any activity in the process of being sold at 31 December 2008. In 2007, the Group sold its interest (49% consolidated using the proportionate method) in the Moroccan entity operating the Marjane hypermarkets and Acima supermarkets. Consequently, the income from the Moroccan activities was presented under the heading ‘‘Net income from assets held for sale and discontinued operations’’ at 31 December 2007. The net income recorded for the Moroccan activities in 2007 came to €215 million, of which €214 million corresponded to a gain on disposal net of tax. The change in cash ﬂows of the activities sold and included in the Group statement of cash ﬂows broke down as follows at 31 December 2007: (in M€) 2007 16 275 282 (2) Net cash ﬂow from operating activities Net cash ﬂow used in investing activities of which impact of disposals Net cash ﬂow used in ﬁnancing activities Change in net cash of the operations sold 289 26 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 8 (in M€) REVENUE 2008 39,325 159 2007 36,570 145 Sales Other revenue Revenue Note 9 (in M€) 39,484 36,715 COST OF SALES 2008 30,532 (160) 2007 28,591 (377) Purchases net of discounts, commercial cooperation services and ancillary and logistics costs Change in inventories (net of provisions) Cost of sales 30,372 28,214 Internal logistics costs The analysis of internal logistics costs included in the cost of sales, by type of expenses, is as follows: (in M€) 2008 181 288 29 2007 173 251 29 Payroll expenses External expenses Depreciation, amortisation and provisions Internal logistics costs Note 10 (in M€) 498 453 PAYROLL EXPENSES 2008 309 3,918 303 15 2007 271 3,651 274 16 External labour expenses Wages and salaries including social security costs Employee incentives and proﬁt-sharing Employee beneﬁts and share-based payments(1) Total Payroll expenses transferred to logistics costs 4,545 (181) 4,212 (173) Net amount in income statement 4,364 4,039 (1) Of which 2008 expenses recognised in respect of deﬁned beneﬁt plans for €4m, other long-term beneﬁts for €2m and share-based payments for €9m. Note 11 (in M€) DEPRECIATION, AMORTISATION AND PROVISIONS 2008 959 provisions(2)(3) 121 2007 888 69 Depreciation and amortisation allowance, net of reversals(1) Allowance for provisions and impairment, net of reversals of unused Total Depreciation, amortisation and provision expenses transferred to logistics costs 1,080 (29) 957 (29) Net amount in income statement 1,051 928 (1) Of which €32 million relating to amortisation of other intangible assets in 2008 (see note 16). (2) Of which €4 million corresponding to net impairment losses for goodwill, other intangible assets, property, plant and equipment and investment property recognised in the 2008 income statement (see note 12). (3) Of which €64 million (€37million in 2007) of impairment losses on credit transactions. 2008 FINANCIAL REPORT AUCHAN 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 12 IMPAIRMENT Other intangible assets 0 0 0 0 (in M€) Goodwill 2 0 2 expenses(1) 0 Property, plant and equipment 1 (1) 0 (6) Investment property 2 0 2 (1) 2008 5 (1) 4 (7) 2007 4 (3) 1 (7) Impairment: allowance reversal net Other operating income and Total (1) Reversal of impairment on sold assets. 2 0 (6) 1 (3) (6) In 2008, impairment losses recorded in respect of goodwill, property, plant and equipment and investment property came to €1 million for the Hypermarkets division (Hyper Taiwan), to €2 million for the Supermarkets division (Supers France), and €2 million for the property division (mainly Immochan Portugal). In 2007, impairment losses concerned mainly property, plant and equipment and came to €1 million for the Hypermarkets division and €2 million for the Supermarkets division. The 1% change in the discount rate did not result in recognition of additional impairment losses. Note 13 (in M€) OTHER FINANCIAL INCOME AND EXPENSES 2008 7 (7) 2007 (1) 5 Gain (loss) on disposal of other non-current ﬁnancial assets Foreign exchange gain (loss) on ﬁnancial transactions not eligible for hedge accounting Provisions and impairment, net of reversals: Reversal of provision for impairment of other ﬁnancial assets Provision for impairment of other ﬁnancial assets Other provisions Cost of discounting pension commitments net of the expected yield on plan assets 3 (1) (2) (6) 0 (1) (1) (8) Other ﬁnancial income and expenses Note 14 INCOME TAXES (6) (6) 14.1 Analysis of net tax expense (in M€) 2008 (429) (7) 2007 (361) 0 Current tax income/expense Current income tax payable Tax adjustments relating to previous years Total current tax expense Deferred tax income/expense Change in temporary differences Impact of changes in tax rates(1) (436) 88 (3) 2 (361) (19) 6 0 On tax losses carried forward Total deferred tax expense Total tax expense (1) The impact for €3 million of changes in tax rates related to Russia in 2008. 87 (349) (13) (374) 28 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14.2 Effective tax rate (ETR) The difference between the tax calculated using the theoretical rate of 34.43% in France (standard rate of 33 1/3% plus the social contribution of 3.3%) and the tax expense effectively recognised for the year can be analysed as follows: (in M€) Tax expense 2008 1,103 ETR 2008 34.4% Tax expense 2007 1,142 ETR 2007 34.4% Income before tax Theoretical tax rate (French standard rate) Theoretical tax expense Difference in tax rates for foreign companies Tax reduction, tax credits and reduced rate taxation Tax losses for the year not recognised Use of previously unrecorded tax losses carried forward Recognition of prior year tax losses and temporary differences Non-taxable items/deferred tax not recognised Tax effect of elimination of investments in subsidiaries and current accounts Current tax adjustments relating to previous years Permanent differences and other 380 (2) (44) 37 (12) (37)(1) 17 4 7 (1) (0.2%) (4.0%) 3.4% (1.1%) (3.4%) 1.6% 0.4% 0.6% (0.1%) 393 5 (31) 10 (13) – 25 (3) 0 (12) 0.4% (2.7%) 0.8% (1.1%) – 2.2% (0.3%) 0.0% (1.0%) Actual tax expense Effective tax rate (ETR) 386 31.6 % 374 32.7 % (1) Mainly Auchan Polska, which now fulﬁls the conditions for recognising deferred tax on temporary differences. Note 15 GOODWILL 15.2 Change in impairment (in M€) 15.1 Change in gross carrying amount (in M€) Impairment loss 45 (1) 0 Gross amount 3,434 51 (33) (13) (1) Gross amount at 1 January 2007 Change linked to business combinations Other changes in consolidation scope Foreign currency translation adjustments Other movements and transfers Impairment loss at 1 January 2007 Deconsolidations Foreign currency translation adjustments Impairment loss at 31 December Impairment loss for the year 2007(1) 44 44 2 (2) 2 Impairment loss at 1 January 2008 Foreign currency translation adjustments Other movements and transfers Gross amount at 31 December 2007 (in M€) 3,438 Gross amount 3,438 184 (19) 2 Gross amount at 1 January 2008 Change relating to business combinations(1) Foreign currency translation adjustments Other movements and transfers Impairment loss at 31 December 2008 (1) See details by business/country below. (1) 46 15.3 Net amount (in M€) Gross amount at 31 December 2008 3,605 (1) In 2008, the change linked to business combinations for €168 million concerned the acquisition of the Ramstore chain in Russia and for €15 million the acquisition of hypermarkets in Portugal and supermarkets in France and Italy. At 1 January 2007 At 31 December 2007 At 1 January 2008 3,389 3,394 3,394 At 31 December 2008 3,559 2008 FINANCIAL REPORT AUCHAN 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The net amount of goodwill by business/country was as follows: (in M€) 2008 1,121 611 181 174 165 484 611 59 80 50 23 2007 1,121 611 171 23 148 479 605 64 80 69 23 Hypermarkets France Hypermarkets Italy Hypermarkets Portugal (including impairment of €1m in 2008 and 2007) Hypermarkets Russia Other hypermarkets (including impairment of €10m in Taiwan in 2008 compared with €7m in 2007) Supermarkets France (including impairment of €18m in 2008 compared with €17m in 2007) Supermarkets Italy Other supermarkets (including impairment of €17m in Poland in 2008 compared with €19m in 2007) Property Management Italy Other Property Management Other Total 3,559 3,394 Note 16 OTHER INTANGIBLE ASSETS 16.1 Change in gross carrying amount Internal IT development costs 15 12 0 0 0 1 (in M€) Licences 121 26 1 (4) 0 (4) Total 136 38 1 (4) 0 (3) Gross amount at 1 January 2007 Acquisitions and internal development Acquisitions linked to business combinations Disposals and retirements Foreign currency translation adjustments Other movements and transfers Gross amount at 31 December 2007 140 28 Internal IT development costs 28 9 0 0 0 0 168 (in M€) Licences 140 37 0 (4) (1) 1 Total 168 46 0 (4) (1) 1 Gross amount at 1 January 2008 Acquisitions and internal development Acquisitions linked to business combinations Disposals and retirements Foreign currency translation adjustments Other movements and transfers Gross amount at 31 December 2008 173 37 210 30 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16.2 Change in amortisation and impairment Internal IT development costs 6 7 0 0 0 (in M€) Licences 82 19 1 (3) (3) Total 88 26 1 (3) (3) Amortisation and impairment at 1 January 2007 Amortisation for the year Impairment Disposals and retirements Other movements and transfers Amortisation and impairment at 31 December 2007 96 13 109 (in M€) Licences 96 23 (4) (1) (3) Internal IT development costs 13 9 0 0 0 Total 109 32 (4) (1) (3) Amortisation and impairment at 1 January 2008 Amortisation for the year Disposals and retirements Foreign currency translation adjustments Other movements and transfers Amortisation and impairment at 31 December 2008 111 22 133 16.3 Net carrying amount Internal IT development costs 9 15 (in M€) Licences 39 44 Total 48 59 At 1 January 2007 At 31 December 2007 At 31 December 2008 No intangible assets had been assigned as a guarantee for debt. 62 15 77 2008 FINANCIAL REPORT AUCHAN 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 17 PROPERTY, PLANT AND EQUIPMENT 17.1 Change in gross carrying amount Land buildings and facilities 8,722 4 550 (197) 9 (20) 365 (in M€) Equipment and other property, plant and equipment 2,463 10 419 (158) (4) 1 (74) Property, plant and equipment under construction(1) 834 0 517 (7) (4) (123) (295) Total 12,019 14 1,486 (362) 1 (142) (4) Gross amount at 1 January 2007 Acquisitions linked to business combinations Other acquisitions Disposals and retirements(2) Foreign currency translation adjustments Transfers to investment property(3) Other movements and transfers Gross amount at 31 December 2007 9,433 2,657 922 13,012 (1) At 31 December 2007, property, plant and equipment under construction concerned the Hypermarkets activity for €703 million, the Supermarkets activity for €78 million and the Property Management activity for €136 million. (2) Of which disposal of operations in Morocco for €78 million, €38 million and €5 million respectively. (3) Assets complying with the deﬁnition of investment property. (in M€) Land buildings and facilities 9,433 9 893 (156) (149) (40) 474 18 Equipment and other property, plant and equipment 2,657 3 461 (109) (18) (33) (275) 0 Property, plant and equipment under construction(1) 922 9 263 (15) (43) 5 (205) (35) Total 13,012 21 1,617 (280) (210) (68) (6) (17) Gross amount at 1 January 2008 Acquisitions linked to business combinations Other acquisitions Disposals and retirements Foreign currency translation adjustments Transfers to investment property(2) Other movements and transfers Other Gross amount at 31 December 2008 10,482 2,686 901 14,069 (1) At 31 December 2008, property plant and equipment under construction concerned the Hypermarkets activity for €663 million, the Supermarkets activity for €107 million and the Property Management activity for €118 million. (2) Assets complying with the deﬁnition of investment property. 32 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17.2 Change in depreciation and impairment Land, buildings and facilities 3,071 448 1 2 (6) (101) 8 (8) 71 (in M€) Equipment and other property, plant and equipment 1,561 300 2 1 0 (143) (3) 0 (76) Property, plant and equipment under construction 15 0 0 0 (3) 0 1 0 0 Total 4,647 748 3 3 (9) (244) 6 (8) (5) Depreciation and impairment at 1 January 2007 Depreciation for the year Cumulative depreciation recognised as the result of business combinations Impairment Reversal of impairment provisions Disposals and retirements(1) Foreign currency translation adjustments Transfers to investment property Other movements and transfers Depreciation and impairment at 31 December 2007 3,486 1,642 13 5,141 (1) Of which disposal of operations in Morocco for €16 million and €26 million respectively. (in M€) Land, buildings and facilities 3,486 509 1 1 (4) (105) (45) (9) 156 Equipment and other property, plant and equipment 1,642 288 2 0 0 (101) (13) (3) (153) Property, plant and equipment under construction 13 0 0 0 (3) 0 (1) 0 (5) Total 5,141 797 3 1 (7) (206) (59) (12) (2) Depreciation and impairment at 1 January 2008 Depreciation for the year Cumulative depreciation recognised as the result of business combinations Impairment Reversal of impairment provisions Disposals and retirements Foreign currency translation adjustments Transfers to investment property Other movements and transfers Depreciation and impairment at 31 December 2008 3,990 1,662 4 5,656 17.3 Net carrying amount Land, buildings and facilities 5,651 5,947 (in M€) Equipment and other property, plant and equipment 902 1,015 Property, plant and equipment under construction(1) 819 909 Total 7,372 7,871 At 1 January 2007 At 31 December 2007 At 31 December 2008 6,492 1,024 897 8,413 (1) At 31 December 2008, property plant and equipment under construction concerned the Hypermarkets activity for €659 million, the Supermarkets activity for €107 million and the Property Management activity for €118 million. 2008 FINANCIAL REPORT AUCHAN 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17.4 Net carrying amount of property, plant and equipment held under ﬁnance leases Land, buildings and facilities 241 91 64 22 18 46 (in M€) Equipment and other property, plant and equipment 5 2 0 0 1 2 Total 246 93 64 22 19 48 At 31 December 2007 Hypermarkets France Hypermarkets Italy Other Hypermarkets Supermarkets Alinéa At 31 December 2008 Hypermarkets France Hypermarkets Italy Hypermarkets Spain Other Hypermarkets Supermarkets Property Management Alinéa 218 69 56 22 8 15 1 47 9 0 0 7 0 0 0 2 227 69 56 29 8 15 1 49 17.5 Guarantees Property, plant and equipment has been pledged to guarantee debts in an amount of €33 million by RT Mart China and in an amount of €4 million by Auchan China. 17.6 Commitments Commitments relating to property, plant and equipment are described in note 44. Note 18 INVESTMENT PROPERTY 18.1 Change Gross amount 2,742 70 234 (71) 0 0 0 5 142 (in M€) Depreciation and impairment 724 2 0 (12) 119 0 (1) 0 8 Net amount 2,018 68 234 (59) (119) 0 1 5 134 At 1 January 2007 Acquisitions linked to business combinations Other acquisitions Disposals and retirements(1) Depreciation for the year Impairment Reversal of impairment Foreign currency translation adjustments Transfers from ‘‘Property, plant and equipment’’ At 31 December 2007 3,122 840 2,282 (1) Including disposal of operations in Morocco for a gross amount of €14 million and depreciation amounting to €4 million. 34 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in M€) Gross amount 3,122 7 458 (31) 0 0 0 (67) 68 (6) Depreciation and impairment 840 0 0 (10) 130 2 (1) (12) 12 (1) Net amount 2,282 7 458 (21) (130) (2) 1 (55) 56 (5) At 1 January 2008 Acquisitions linked to business combinations Other acquisitions Disposals and retirements Depreciation for the year Impairment Reversal of impairment Foreign currency translation adjustments Transfers from ‘‘Property, plant and equipment’’ Other movements and transfers At 31 December 2008 3,551 960 2,591 18.2 Net carrying amount of investment property held under ﬁnance leases (in M€) Commitments relating to investment property are described in note 44. Investment property generated rental income of €422 million in 2008 compared with €361 million in 2007 and direct operating expenses of €201 million, of which €11 million generated no rental income (respectively €180 million and €9 million in 2007). At 31 December 2008, the fair value of investment property was estimated at €5,460 million for a net carrying amount of €2,591 million (€4,886 million and €2,282 million respectively in 2007). The 12% increase in the fair value is attributable to increases in rents excluding expansion (5%) and expansion (7%). At 31 December 2007 France Italy 113 6 107 At 31 December 2008 France Italy 102 5 97 Investment properties have been pledged to secure liabilities for €356 million in Italy and for €22 million in China. Note 19 INVESTMENT IN ASSOCIATES 19.1 Change (in M€) 2008 152 (10) (7) 0 25 (5) (23) 2007 83 (6) 0 89 3 (11) (6) At 1 January Income (share of) for the period Dividends paid and repayment of capital Equity interests acquired(1) Other acquisitions and increases in capital(2) Disposals Foreign currency translation adjustments(3) At 31 December 132 152 (1) Equity investments acquired in 2007 correspond to the acquisition of a 21% interest in the Ukrainian supermarket group Furshet (€83m) and a 30% interest in Santander Consumer France (Credit activity) (€6m). (2) Other acquisitions in 2008 correspond mainly to the acquisition of an additional 20% of the capital of MGV Distri-Hiper/Hypermarkets in Romania (€6m) and of an additional 8.6% of the capital of Valauchan International (€19m). (3) The change in foreign currency translation adjustments in 2008 relates mainly to the depreciation of the Ukrainian hryvnia. 2008 FINANCIAL REPORT AUCHAN 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19.2 Breakdown of investments in associates Company Galleria Commerciale Porta di Roma SpA Il Mulino Srl Immobiliare Commerciale Xxi Srl Vulcano SpA Iniziative commerciali Napoli SpA Centro commerciale C’E’ SA Business Advisor srl Centro commerciale C’E’ 2 Srl Valauchan International MGV Distri-Hiper Romania Anthousa/Furshet Santander Consumer France(2) Another NS company Country 2008 Italy Italy Italy Italy Italy Italy Italy Italy Luxembourg Romania Ukraine France France 20 20 20 23 25 49 49 49 17 49 21 0 50 % of interest 2007 20 20 20 23 25 49 49 49 9 29 21 30 0 Value of shares 2008 18 2 1 17 3 2 NS NS 32 3 53 0 1 of which goodwill 2008 2007 2007 26 2 1 21 4 2 NS NS 13 1 77 5 0 8 5 37 3 0 54 Total (1) The company was sold in 2008. NS: Not signiﬁcant. 132 152 50 57 19.3 Main ﬁnancial data of investments in associates (100% and M€) 2008 Company Galleria Commerciale Porta di Roma SpA Il Mulino Srl Immobiliare Commerciale Xxi Srl Vulcano SpA Iniziative commerciali Napoli SpA Centro commerciale C’E’ SA Business Advisor srl Centro commerciale C’E’ 2 Srl Valauchan International MGV Distri-Hiper Romania Anthousa/Furshet Santander Consumer France(2) Another NS company NS : Non signiﬁcant. (1) Mainly Groupe Auchan SA shares. (2) The company was sold in 2008. 2007 Revenue 37 3 4 22 24 1 NS NS NS 258 683 – NS Total assets 272 25 38 233 75 2 1 NS 146(1) 80 336 – 1 Equity 17 2 NS 24 14 1 NS NS 145 (4) 75 – 1 Net income (2) NS (1) (17) (3) NS NS NS (1) (7) (4) – NS Total assets 270 27 40 196 51 2 1 NS 121(1) 65 312 19 – Equity 47 1 NS 32 14 1 NS NS 120 2 109 19 – Revenue 17 3 3 11 18 NS NS NS NS 137 238 NS – Net income NS 1 (1) 3 NS NS NS NS NS (1) 3 (2) – 36 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 20 CUSTOMER LOANS – CREDIT ACTIVITY This item is included in loans and receivables. It represents the receivables held by Banque Accord, its subsidiaries and Comfactor on their customers. It includes personal loans, revolving credit and deferred payment facilities on Accord credit cards, as well as the receivables of the captive factoring activity carried out by Comfactor in Italy. (in M€) 2008 3,098 3 months or less between 3 months and 1 year between 1 and 5 years more than 5 years 923 820 1,234 121 (280) 2007 3,019 1,118 595 1,196 110 (226) Gross amount with a maturity of Impairment Net amount of which non-current current 2,818 1,195 1,623 2,793 1,129 1,664 The deterioration in economic conditions linked to the ﬁnancial crisis has resulted in a rise in payment defaults and debt collection difﬁculties at Banque Accord and its subsidiaries, and consequently an increase in impairment losses. Note 21 OTHER FINANCIAL ASSETS Given the nature of its business, the Group’s exposure to debtor credit risk cannot have a signiﬁcant impact on its business, ﬁnancial situation or assets. 21.1 Classiﬁcation of non-current ﬁnancial assets by category (net carrying amount) (in M€) 2008 trading(1) 37 None 56 406 155 year(4) 8 47 196 2007 8 None 152 311 84 24 47 156 Financial assets held for Held-to-maturity investments Available-for-sale ﬁnancial assets(2) Loans and receivables issued by the company Financial receivables(3) Receivables on disposals of non-current assets maturing in more than 1 Other non-operating receivables Prepaid expenses(5) Other non-current ﬁnancial assets (net amount) of which cumulative impairment 499 11 471 12 (1) Financial assets held for trading correspond to marketable securities and term deposits subject to restrictions on utilisation by the Group for contractual or prudential reasons. (2) Available-for-sale ﬁnancial assets comprise mainly shares in companies which are neither controlled nor under signiﬁcant inﬂuence. They also include shareholdings in subsidiaries whose impact on the Group’s ﬁnancial statements is not material. See note 21.2 below for a description of the main change. (3) Financial receivables comprise mainly guarantee deposits and the non-cancelled portion of loans to companies consolidated using the proportionate method (see note 40). (4) Interest-bearing or discounted receivables. (5) Prepaid expenses comprise mainly land use rights in Poland, Russia and China. 2008 FINANCIAL REPORT AUCHAN 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21.2 Mexican shares In 2003, Auchan Group sold its Mexican shopping centres to Comerci subject to the suspensive condition of full payment of the agreed price. The payment was spread over the period from 2003 to 2008. The deﬁnitive transfer of the shares did not take place until the last payment was made on 28 February 2008. The amounts relating to the sale of the Mexican shares are recognised in ‘‘Other non-current assets’’ for € (90) million and in ‘‘Other current liabilities’’ for € (79) million, as the ﬁnal payment of €14 million was received in February 2008. 21.3 Classiﬁcation of current ﬁnancial assets by category (net carrying amount) (in M€) 2008 trading(1) 1,035 None None 2,484 15 2,469 59 2007 1,433 None None 2,292 33 2,259 61 Financial assets held for Held-to-maturity investments Available-for-sale ﬁnancial assets Loans and receivables issued by the company(2) Financial receivables Other receivables of which cumulative impairment (1) Financial assets held for trading correspond to marketable securities. They are recognised under “Cash and cash equivalents” (see note 27). (2) Loans and receivables issued by the company are recognised on the balance sheet under “Other current receivables” (see note 26). Note 22 DEFERRED TAX ASSETS AND LIABILITIES 22.1 Breakdown of deferred tax assets and liabilities Asset (in M€) Liability 2007 87 30 39 11 0 5 0 0 2 Net 2007 598 (84) 443 120 44 (25) 1 83 16 2008 146 44 77 14 (18) 11 0 0 18 2008 569 (82) 402 117 35 (23) 3 93 24 2008 (423) 126 (325) (103) (53) 34 (3) (93) (6) 2007 (511) 114 (404) (109) (44) 30 (1) (83) (14) On temporary differences Non-deductible provisions Instan. assets, PP&E and depreciation Investment property and depreciation Finance leases Inventories Employee beneﬁts Tax regulated provisions Other On losses carried forward Deferred tax assets/liabilities 2 148 1 88 (2) 567 0 598 4 (419) 1 (510) 38 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22.2 Deferred taxes not recognised Deferred tax assets amounting to €79 million (€76 million at 31 December 2007) relating to tax losses carried forward, tax credits and other temporary differences were not recognised as their recovery is considered unlikely. Unrecognised deferred tax assets break down as follows: (in M€) 2008 51 9 3 16 Between 2009 and 2013 Between 2014 and 2018 After 2018 Carried forward indeﬁnitely or without maturity date Total unrecognised deferred tax assets 79 22.3 Change in deferred tax assets and liabilities (+: asset or income, ( ): liability or expense) Foreign currency translation adjustments (4) (1) (1) (2) (3) (in M€) On temporary differences Non-deductible provisions Instan. assets, PP&E and depreciation Investment property and depreciation Finance leases Inventories Employee beneﬁts Tax regulated provisions Other 01.01.2008 (511) 114 (404) (109) (44) 30 (1) (83) (14) Recognised in income 85 14 77 15 (14) 5 (5) (10) 3 Recognised in equity 10 Reclassiﬁcation 0 (1) 6 (7) 5 (1) Changes in consolidation scope (3) 31.12.2008 (423) 126 (325) (103) (53) 34 (3) (93) 4 (1) 6 (1) (6) On tax losses carried forward generated during the year On tax losses carried forward used during the year Deferred tax assets/liabilities 1 6 1 8 0 (510) (4) 87 10 0 (3) (3) (4) (419) Deferred tax recognised in equity relates to actuarial differences on deﬁned beneﬁt plans for €4 million and on cash ﬂow hedging transactions for €6 million. Changes in the consolidation scope comprise the ﬁrst-time consolidation of fully-consolidated companies (Russia € (2) million and property France € (1) million). 2008 FINANCIAL REPORT AUCHAN 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 23 INVENTORIES 2008 3,213 (101) Note 27 CASH AND CASH EQUIVALENTS Inventories comprise mainly merchandise. (in M€) 2007 3,043 (79) Net cash presented in the cash ﬂow statement corresponds to the following: (in M€) Gross amount Impairment 2008 1,035 1,310 2007 1,433 962 Net value 3,112 2,964 Marketable securities with a maturity of less than 3 months Cash Change in impairment (in M€) 2008 (79) (82) 58 2 2007 (78) (62) 59 2 Cash and cash equivalents Bank overdrafts (see note 32) 2,345 (385) 2,395 (541) At 1 January Impairment Reversal of impairment Changes in the consolidation scope and foreign currency translation adjustments Net cash Note 28 1,960 1,854 TOTAL EQUITY 28.1 Shareholders (101) (79) At 31 December 2008, 87% of the capital of Groupe Auchan SA was held by companies belonging to the Association Familiale Mulliez while the remaining 13% was held by employees of the company via the Valauchan, Valsuper and Valaccord investment funds, and Valauchan Sopaneer International (consolidated using the equity method) and Valauchanrus Sopaneer International (fully consolidated) companies. At 31 December No inventory amounts have been pledged to secure liabilities. Note 24 TRADE RECEIVABLES This line comprises essentially receivables relating to franchise arrangements, and rent outstanding for the Property Management business. (in M€) 2008 440 (57) 2007 433 (50) Gross amount Impairment 28.2 Number of shares representing the share capital 2008 At 1 January Issue of new shares Merger of Groupe Auchan SA shareholder companies 2007 31,419,437 24,767 1,054 Net amount 383 383 31,445,258 151,880 0 Note 25 (in M€) CURRENT TAX ASSETS 2008 43 (5) 2007 67 (5) At 31 December 31,597,138 31,445,258 Gross amount Impairment Net amount Note 26 (in M€) 38 62 At 31 December 2008, the share capital amounted to €631,942,760 compared with €628,905,160 at 31 December 2007, consisting of fully paid-up ordinary shares with a nominal value of €20 each. OTHER CURRENT RECEIVABLES 2008 2,403 140 28.3 Treasury shares 2007 2,226 127 Other receivables Prepaid expenses Gross amount Impairment 2,543 (59) 2,353 (61) Net amount 2,484 2,292 Other receivables mainly comprise tax and social security receivables and deferred income from suppliers. Groupe Auchan SA subsidiary Eurauchan’s trade receivables securitisation programme ended in 2008 (at 31 December 2007, receivables assigned but not derecognised amounted to €10 million). In 2008, 72,055 shares were purchased for a total amount of €24 million and 18,150 new shares were created (for an amount of €6 million) in the context of a capital increase reserved to Groupe Auchan SA and wholly subscribed by a fully consolidated subsidiary, and 37,538 shares were sold (for €10 million) under settlement of share purchase plans. At 31 December 2008, the Group held 86,278 treasury shares (compared with 33,631 at the end of 2007) of which 68,128 with a value of €24 million were held by Groupe Auchan SA. These shares are allocated to cover share option plans and bonus shares granted to Group executives. 40 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28.4 Legal reserve Groupe Auchan SA’s legal reserve amounted to €63 million at 31 December 2008. 28.7 Proposed dividend On 4 March 2009, a dividend of €100 million, corresponding to €3.17 per share, was proposed by the Executive Board to the Ordinary General Meeting convened to approve the financial statements for the year ended 31 December 2008. A total dividend of €180 million, corresponding to €5.72 per share, was paid in respect of the 2007 ﬁnancial year. Appropriation of net income was not taken into account in the ﬁnancial statements for the year ended 31 December 2008. Note 29 28.5 Analysis by type of reserve 28.5.1 Currency translation reserve This reserve was negative by €105 million at 31 December 2008 compared with a positive ﬁgure of €54 million at 31 December 2007. It breaks down as follows by country (in group share): (in M€) 2008 21 (8) 9 (9) (70) (48) 2007 89 4 (11) (14) (7) (7) EMPLOYEE BENEFITS Poland Hungary Mainland China Taiwan Russia Ukraine Group employees receive long-term or post-employment beneﬁts based on the rules and practices in each country. These additional beneﬁts take the form of deﬁned contribution or deﬁned beneﬁt plans. 29.1 Deﬁned contribution plans Under these plans, the Group makes regular contributions to external bodies that are responsible for the administrative and ﬁnancial management of the plan. Contributions to these plans are expensed when incurred. In 2008 they amounted to €319 million (compared with €302 million in 2007). Total (105) 54 28.5.2 Revaluation reserve for available-for-sale ﬁnancial assets Change (in M€) At 1 January Change 2008 (3) 3 2007 (2) (1) 29.2 Deﬁned beneﬁt plans Deﬁned beneﬁt plans primarily concern retirement indemnities in France and statutory retirement compensation in Italy. In France, the inter-professional national agreement of 11 January 2008 (Accord national interprofessionnel - ANI) provides for the payment of an indemnity in the event of conventional termination of the work contract. Some legal experts consider that retirement could fall within the scope of this agreement. Pending clarification of this issue and in accordance with the recommendations of the French employers’ federation (Medef), the Group did not take this agreement into account for the calculation of retirement indemnities for 2008). In France, the plans are funded and the assets are managed by an A rated , French mutual insurance company, Groupe La Mondiale. In the event of the collapse of La Mondiale, its commitments would be assumed by the other companies in the market (a guarantee fund mechanism providing market security would be implemented). Provisions (non-current and current) for employee benefits amounted to €163 million at 31 December 2008 (compared with €174 million at the end of 2007), of which €6 million for long-term beneﬁts and €157 million for post-employment beneﬁts. At 31 December 28.5.3 Cash ﬂow hedge reserve Change (in M€) At 1 January Change 0 (3) 2008 (4) (8) 2007 3 (7) At 31 December 28.5.4 Net asset hedge reserve Change (in M€) At 1 January Change (12) (4) 2008 6 (1) 2007 0 6 At 31 December 5 6 28.6 Minority interests Minority interests comprise mainly minority interests in ISMS and its subsidiaries (Supermarkets business) for €25 million (down by €33 million following the purchase of ISMS shares from the Valsuper employee savings fund), in subsidiaries in China and Taiwan for €53 million and in Soparimmofonds and its subsidiaries (which hold a number of the property management companies) for €15 million. 2008 FINANCIAL REPORT AUCHAN 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The main actuarial assumptions used to estimate the obligations are as follows: 2008 Actuarial assumptions Discount rate at 1 January Discount rate at 31 December Expected rate of return on plan assets at 1 January Expected rate of salaries increase 2007 Italy 4.50% 4.50% NA 2.50% France 5.35% 5.50% 5.35% 2.60% France 4.35% 5.35% 4.35% 2.50% Italy 4.00% 4.50% NA 2.50% NA : Not applicable (as there are no assets). The change in the present value of the obligation in respect of deﬁned beneﬁt plans is analysed as follows: Change (in M€) Present value of obligation at 1 January Interest cost Current service cost Beneﬁts paid Actuarial gains and losses Other Balance sheet data can be reconciled with the actuarial obligation in respect of deﬁned beneﬁt plans as follows : (in M€) 2008 284 12 4 (22) 5 (1) 2007 319 12 9 (39) (18) 1 2008 282 (125) 2007 284 (114) Present value of the obligation Fair value of assets Deﬁcit/(surplus) 157 157 170 170 Net liability recognised in the balance sheet The change in the net provision recognised in the balance sheet is as follows: (in M€) Present value of obligation at 31 December 282 284 2008 170 12 5 7 10 (16) (18) (1) 2007 222 (16) (18) 0 17 (19) (34) 0 Provision at 1 January Actuarial gains and losses recognised in equity of which actuarial gains and losses on plan liabilities of which actuarial gains and losses on plan assets Net expense of the period Contributions paid Beneﬁts paid for the period Other The change in the fair value of deﬁned beneﬁt plan assets was as follows: (in M€) 2008 114 6 16 (4) (7) 2007 97 4 19 (4) (2) Fair value of assets at 1 January Expected return on plan assets Contributions paid Beneﬁts paid Actuarial gains and losses Fair value of assets at 31 December 125 114 Provisions recognised in the balance sheet at 31 December 157 170 Almost all the assets placed with La Mondiale beneﬁt from a capital guarantee. Estimated contributions to be paid in respect of 2009 amount to €22 million. Deﬁned beneﬁt plan assets in France break down by main asset class as follows: 2008 Shares Bonds Real estate 23% 68% 9% The aggregate actuarial loss recognised in equity at 31 December 2008 came to €1 million before tax and €1 million after tax (compared with a gain of €12 million before tax and a gain of €8 million after tax at 31 December 2007). Expenses recorded in respect of deﬁned beneﬁt plans break down as follows: (in M€) 2008 4 12 (6) 2007 9 12 (4) 2007 32% 57% 11% Current service cost Interest cost Expected return on plan assets Expenses recognised of which recognised in payroll expenses of which recognised in other ﬁnancial income and expenses 10 4 17 9 6 8 42 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 30 SHARE-BASED PAYMENTS As a reward for service, Groupe Auchan SA has allocated share purchase options and bonus shares to some members of the staff under share option and bonus share plans. The expense is recognised in debt as for both types of plan the employee or corporate ofﬁcer must give an irrevocable promise to sell the shares to the Group, thereby generating a repurchase commitment that is recognised in debt. 30.1 Share option plans allocated by Groupe Auchan SA 30.1.1 Change in number of options and weighted average exercise price for 2007 and 2008 2008 Weighted average exercise price (in €) Options outstanding at the beginning of the year Options granted during the year Options exercised during the year Options cancelled or lost Options expired Options outstanding at the end of the year Price range Weighted average contractual duration Options exercisable at the end of the year 311.53 280.03/341.61 25 months 0 297.42 341.61 272.98 297.50 2007 Number of options 175,424 35,254 34,534 5,899 0 170,245 297.42 272.98/321.56 27 months 0 Weighted average exercise price (in €) 282.58 321.56 282.11 281.96 Number of options 148,919 66,310 36,005 3,800 0 175,424 30.1.2 Calculation of fair value of existing plans (in weighted average value) Year granted 2008 Fair value of options Share price Exercise price Expected volatility Residual duration of the option Expected dividends Risk-free interest rate Type of model 69.74 € 341.61 € 341.61 € 23.94% 42 months 1.06% 2.87% binomial 2007 66.06 € 341.61 € 321.56 € 23.94% 30 months 1.06% 2.87% binomial 2006 69.65 € 341.61 € 294.05 € 23.94% 18 months 1.06% 2.87% binomial 2005 66.52 € 341.61 € 280.03 € 23.94% 6 months 1.06% 2.87% binomial The volatility was estimated based on an analysis of the implicit volatility of companies with a similar activity to Groupe Auchan SA over a period of 4 years preceding the grant date. 30.1.3 Characteristics of option plans issued • The options are unavailable for a period of 4 years from the grant date. • They can be exercised during the period from 15 May to 15 July of the plan maturity year. • The conditions for exercise of the options are an effective and continuous presence in the issuer company or one of its subsidiaries. Any interruption of the contract for reasons other than illness or maternity (and any other condition speciﬁc to the issuer company) will cause the option rights to become null and void. Furthermore, for expatriate beneﬁciaries, their mission abroad must have been completed. Any early return to their country of origin will cause the options rights to become null and void. There are no performance conditions linked to these share purchase option plans. 2008 FINANCIAL REPORT AUCHAN 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30.1.4 Impact on the income statement (payroll expenses) The annual impact per plan is of less than €1 million. The total aggregate impact of the various plans came to €2 million in 2008, as in 2007. In addition, an expense of €1 million was recognised in respect of share option plans at ISMS, Banque Accord and Alinéa. 30.1.5 Impact on debt (other ﬁnancial liabilities) At 31 December 2008, the impact on debt came to €5 million, unchanged relative to 31 December 2007. There was also €2 million relating to plans at ISMS, Banque Accord and Alinéa (unchanged relative to 31 December 2007). 30.2.2 Calculation of fair value of existing plans (in weighted average value) Plan granted during the year 2007 Fair value of shares Share price Expected volatility Residual duration of the option Expected dividends Risk-free interest rate Type of model 337.05€ 321.56€ 27.56% 9 months 1.06% 2.87% binomial 30.2 Bonus share plans allocated by Groupe Auchan SA 30.2.1 Change in the number of bonus shares and average weighted exercise price in 2007 and 2008 2008 Number of shares Bonus shares at the beginning of the year Bonus shares granted during the year Bonus shares cancelled or lost Bonus shares at the end of the year 30,167 0 0 30,167 The volatility was estimated based on an analysis of the implicit volatility of companies with a similar activity to Groupe Auchan SA over a period of 2 years preceding the grant date. There are no performance conditions linked to these share purchase option plans. 30.2.3 Characteristics of bonus share plan • Plan inception date: 10 October 2007. • Value of the underlying share: €321.56. • Grant date: 10 October 2009. 30.2.4 Impact on the income statement (payroll expenses) The impact was €5 million in 2008 compared with €1 million in 2007. 30.2.5 Impact on debt (other ﬁnancial liabilities) 2007 Number of shares 0 30,167 0 30,167 Note 31 PROVISIONS The impact on debt was €6 million at 31 December 2008 compared with €1 million on 1 January 2008. 31.1 Non-current (in M€) Tax disputes Excluding income tax Income tax 38 10 (5) (4) 0 0 Other disputes Employee beneﬁts Other(1) Total At 31 December 2007 Provisions expense Reversals used(2) Reversal of provisions unused or reconstituted(3) Actuarial gains and losses recognised in equity Reclassiﬁcation and other movements(4) 17 5 (3) (4) 0 0 1 0 0 0 0 (1) 145 18 (41) 0 12 8 55 2 (1) (1) 0 (2) 256 35 (50) (9) 12 5 At 31 December 2008 15 39 0 142 53 249 (1) This line includes a provision of €47 million for tax relief to be received in respect of the meat tax for 2001. Given the progress of the dispute with the French tax authorities, tax rebates received or receivable for 2001 to 2003 have not been recognised in income for reasons of prudence. (2) Essentially:Tax disputes: settlement of income tax dispute in Russia (€4 million).Employee beneﬁts: of which €33 million recognised in ‘‘Payroll expenses’’ (current service cost) and €8 million recognised in “Other ﬁnancial income and expense” (ﬁnancial cost). (3) Mainly concerns: a tax dispute settled in Portugal (€8 million). (4) Reclassiﬁcation of portion at less than 1 year under current provisions. 44 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31.2 Current (in M€) At 31 December 2007 Provisions expense Reversals used(1) Reversal of provisions unused or reconstituted(2) Reclassiﬁcation and other movements(3) Tax disputes 13 2 (6) (3) 0 Other disputes 79 26 (9) (12) 2 Provisions for guarantees 20 20 0 (20) 0 Employee beneﬁts 29 0 0 0 (8) Other 29 11 (9) (1) 0 Total 170 59 (24) (36) (6) At 31 December 2008 6 86 20 21 30 163 (1) Reversal of provisions used: Tax disputes: reversal linked to tax reassessment in France; Other disputes: these concern trade disputes and other third parties for €7 million and disputes with employees for €2 million. (2) Reversals of provisions unused or reconstituted: Other litigation: reversals of unused provisions correspond to the excess of provisions for risks and litigation over the expense recognised when settled; they concern litigation with suppliers and other third parties for €6 million and disputes with employees for €6 million (of which €3 million in Italy). The provision for guarantees is reconstituted in full at each closing date, the expense being recognised principally in “External expenses”. (3) Of which €5m proceeding from the reclassiﬁcation of the portion of non-current provisions at less than 1 year. Note 32 BORROWINGS AND OTHER FINANCIAL LIABILITIES 32.1 Non-current borrowings and other ﬁnancial liabilities (in M€) 2008 2,835 457 204 159 2007 1,599 603 234 167 Bonds Bank loans and borrowings Obligations under ﬁnance leases Other borrowings and ﬁnancial liabilities Total 3,655 2,603 32.2 Current borrowings and other ﬁnancial liabilities (en €m) 2008 68 497 18 733 385 2007 794 425 17 104 541 Bonds Bank loans and borrowings Obligations under ﬁnance leases Other borrowings and ﬁnancial liabilities Bank overdrafts Total 1,701 1,881 Accrued interest is recognised under “Other borrowings and ﬁnancial liabilities”, apart from interest relating to bonds. 2008 FINANCIAL REPORT AUCHAN 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32.3 Main characteristics of borrowings and other ﬁnancial liabilities 32.3.1 Bonds This concerns bonds issued in Luxembourg under the EMTN (Euro Medium Term Notes) programme and a CHF125 million loan issued in Switzerland. (in M€) 31.12.2008 Nominal interest rate 3.5000% 4.1250% 3.0000% EURIBOR 3 M+0.18% 5.1250% 5.0000% 5.1250% 3.7500% 31.12.2007 Carrying amount 0 302 611 75 715 858 250 92 Borrower company Groupe Auchan SA Groupe Auchan SA Groupe Auchan SA Groupe Auchan SA Groupe Auchan SA Groupe Auchan SA Groupe Auchan SA Groupe Auchan SA Issue date 22.07.2003 04.05.2004 28.06.2005 09.03.2005 18.07.2007 29.04.2008 18.07.2008 23.06.2008 Maturity 22.07.2008 04.05.2011 28.06.2010 09.03.2012 18.07.2014 29.04.2013 18.07.2014 23.06.2015 Nominal value 0 300 600 75 650 800 250 77(1) Nominal value 750 300 600 75 650 0 0 0 Carrying amount 757 303 585 75 674 0 0 0 (1) Hedging value; loan issued initially for CHF125 million. 32.3.2 Bank loans and borrowings (in M€) 31.12.2008 Nominal interest rate 3.4640% EURIBOR 3M + 0.475% EURIBOR 3M + 0.15% EURIBOR 3M + 0.125% EURIBOR 3M + (1.05% and 1.15%) 31.12.2007 Nominal value 136 80 111 112 316 Borrower company Groupe Auchan SA Erregest SpA Auchan SpA Auchan Coordination Services GCI Issue date 15.05.2003 30.06.2005 15.03.2003 11.04.2007 22.12.2004 Maturity 15.05.2008 25.06.2010 15.03.2013 11.04.2008 09.12.2011 Nominal value 0 80 91 0 242 Carrying amount 0 80 91 0 242 Carrying amount 136 80 111 112 316 The Group has other borrowings and credit lines for unit amounts of less than €50 million. The amount of long- and medium-term lines of credit granted and conﬁrmed by the banks but unused at 31 December 2008 is given in note 44. 32.3.3 Other ﬁnancial liabilities This line includes commercial paper, of which the main ones are as follows: (in M€) 31.12.2008 Maturity Under 1 month 1 to 3 months 3 to 6 months 6 months and more Borrower company Auchan Finances Auchan Finances Auchan Finances Auchan Finances Nominal value 85 321 181 56 Carrying amount 85 321 181 56 46 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32.3.4 Commitment to purchases shares from minority shareholders The Group has given commitments to the minority shareholders of some fully-consolidated companies to buy out their interests. These commitments are recorded under other ﬁnancial liabilities due to the undertaking to purchase at market value. The value of the commitments is determined based on an independent appraisal of the underlying and amounted to €48 million at 31 December 2008. Change (in M€) Valsuper France Valauchan Italy Other 31.12.2007 14 32 6 Increase 0 3 2 Decrease (7) (2) 0 31.12.2008 7 33 8 Total 52 5 (9) 48 Note 33 (in M€) DEBTS FINANCING THE CREDIT ACTIVITY 2008 766 672 917 181 2007 750 941 623 116 Bonds Bank loans and borrowings Other ﬁnancial liabilities(1) Other (including bank overdrafts) Total of which non-current current 2,536 751 1,785 2,430 997 1,433 (1) Other ﬁnancial liabilities relate to Banque Accord’s credit activity for €841 million, of which €121 million in commercial paper and €720 million in certiﬁcates of deposit. Accrued interest, apart from that relating to bonds, is included under “Other ﬁnancial liabilities”. 33.1 Characteristics of main bonds These concern bonds issued in Luxembourg under the EMTN (Euro Medium Term Notes) programme. (in M€) 31.12.2008 Nominal interest rate EURIBOR 3M + 0.22% EURIBOR 3M + 0.18% EURIBOR 3M + 0.175% EURIBOR 3M + 0.17% 31.12.2007 Carrying amount 150 200 200 200 Borrower company Banque Accord SA Banque Accord SA Banque Accord SA Banque Accord SA Issue date 30.09.2004 30.09.2005 16.06.2006 06.06.2007 Maturity 30.09.2009 30.09.2010 16.06.2011 06.06.2012 Nominal value 150 200 200 200 Nominal value 150 200 200 200 Carrying amount 150 200 200 200 There are other bond issues for unit amounts of less than €20 million. 2008 FINANCIAL REPORT AUCHAN 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 33.2 Characteristics of main bank loans and borrowings (in M€) 31.12.2008 Nominal interest rate EURIBOR 3M + 0.10% 3.4640% 31.12.2007 Carrying amount 100 0 0 50 200 50 Borrower company Banque Accord SA Banque Accord SA Banque Accord SA Banque Accord SA Banque Accord SA Banque Accord SA Groupe Auchan SA for a loan to Banque Accord in 2007 Auchan Coordination Services for a loan to Banque Accord Comfactor Issue date 27.12.2005 15.05.2003 31.12.2007 31.10.2008 31.10.2008 06.11.2008 Maturity 27.12.2010 15.05.2008 02.01.2008 28.04.2009 30.04.2009 06.02.2009 Nominal value 100 0 0 50 200 50 Nominal value 100 177 102 0 0 0 Carrying amount 100 177 102 0 0 0 EONIA + 0.125% EURIBOR 6M + 0.17% EURIBOR 6M + 0.15% EURIBOR 6M + 0.15% 3.4640% 15.05.2003 15.05.2008 0 0 100 100 EURIBOR 3M + 0.125% EURIBOR 3M + 1% 11.04.2007 01.12.2008 11.04.2008 28.02.2010 0 50 0 50 68 0 68 0 The Group has other borrowings and credit lines for unit amounts of less than €50 million. The amount of long- and medium-term lines of credit granted and confirmed by the banks but unused at 31 December 2008 is given in note 44. 33.3 Characteristics of main items of other ﬁnancial liabilities This line includes commercial paper and certiﬁcates of deposit, of which the main ones are as follows: (in M€) 31.12.2008 Maturity Under 1 month 1 to 3 months 3 to 6 months 6 months and more Borrower company Banque Accord SA Banque Accord SA Banque Accord SA Banque Accord SA Nominal value 247 328 176 51 Carrying amount 247 328 176 51 48 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 34 FINANCIAL INSTRUMENTS 34.1 Income and expenses on ﬁnancial instruments 34.1.1 Recognised in the income statement (in M€) 2008 Excluding credit activity Credit activity 6 266 0 0 0 0 2 0 0 0 0 0 13 2007 Excluding credit activity 18 6 0 N/S 5 0 3 28 0 0 0 0 13 Credit activity 1 230 0 0 0 0 2 1 0 0 0 0 3 Interest on bank deposits Interest on loans and receivables issued by the company not written down Interest on loans and receivables issued by the company written down Dividends received in respect of available-for-sale assets Net foreign exchange gain Net proﬁt on available-for-sale assets derecognised from equity Change in fair value of derivatives (except fair value hedge) Net proﬁt on ﬁnancial assets held for trading Net proﬁt on derivatives in the context of fair value hedges Net proﬁt on ﬁnancial liabilities in the context of fair value hedges Appreciation of available-for-sale assets Ineffective portion of the change in the fair value of cash ﬂow hedging instruments Net change in the fair value of cash ﬂow hedging instruments derecognised from equity 32 0 0 1 0 0 8 33 85 0 10 0 14 Income from ﬁnancial instruments Commitment fees Interest on ﬁnancial liabilities measured at amortised cost Net foreign exchange loss Net loss on available-for-sale assets derecognised from equity Change in the fair value of derivatives (except fair value hedges) Net loss on ﬁnancial assets held for trading Net loss on derivatives in the context of fair value hedges Net loss on ﬁnancial liabilities in the context of fair value hedges Impairment loss on available-for-sale assets Impairment loss on loans and receivables issued by the company Ineffective portion of the change in fair value of cash ﬂow hedging instruments Ineffective portion of the change in fair value of hedges of net investments in foreign operations Net change in the fair value of cash ﬂow hedging instruments derecognised from equity 183 2 135 7 3 0 0 0 249 0 7 0 0 0 287 0 79 0 0 0 0 0 3 0 54 1 0 0 73 2 118 0 1 0 N/S 6 100 1 (12) 2 0 0 237 0 66 0 0 1 0 0 7 0 23 0 0 0 Expenses on ﬁnancial instruments Net income from ﬁnancial instruments 403 (220) 137 150 218 (145) 97 140 The above income includes the following items resulting from assets or liabilities not recognised at fair value through proﬁt or loss and therefore recognised at amortised cost. Total interest income Total interest expense 32 137 266 79 24 118 231 69 2008 FINANCIAL REPORT AUCHAN 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 34.1.2 Recognised directly in equity (attributable to equity holders of the parent and minority interests) (in M€) 2008 Excluding credit activity Credit activity 0 0 (1) (13) 0 2007 Excluding credit activity (1) 0 5 (13) 9 Credit activity 0 0 1 (3) 0 Net change in fair value of ﬁnancial assets available for sale Net change in fair value of available-for-sale ﬁnancial assets transferred to income (disposal) Effective portion of changes in fair value of cash ﬂow hedging instruments Fair value of cash ﬂow hedging instruments transferred to income Effective portion of changes in fair value of instruments used to hedge a net investment in a foreign operation 3 0 14 (14) (1) Foreign exchange translation adjustments resulting from foreign operations (in M€) (155) 2008 Excluding credit activity 0 6 2007 0 Credit activity 0 (14) 0 Excluding credit activity (1) 1 6 Credit activity 0 (2) 0 Fair value reserve Hedge reserve Foreign exchange translation adjustment reserve 3 (1) (155) The €155 million decrease in the foreign currency translation reserve in 2008 includes a negative translation adjustment of €30 million recorded on the intra-Group loan granted to the Ukrainian subsidiary, which qualiﬁes as a net investment in a foreign operation under IAS 21. 34.2 Risks During the usual course of its business, the Group is exposed to interest rate, foreign exchange, credit and liquidity risks. It uses derivative ﬁnancial instruments to mitigate these risks. The Group has put set up organisation that enables centralised management of market risks (liquidity, interest rate and foreign exchange risk). At 31 December 2008, these derivatives were recognised in the balance sheet at their market value under current and non-current assets and liabilities. Market risk is controlled and monitored by the Financial committee, which meets 3 times a year. The Group’s general management is represented on the Committee, whose duties include in particular the assessment of counterparty quality, the level of the hedges put in place and their appropriateness with regard to the underlying assets, as well as the liquidity risk. added to in the second half of 2008 by a stricter analysis of counterparty risk and the number of counterparties eligible for investments was reduced to four international banks. In addition, surplus cash is invested solely in bank money-market vehicles in euro. 34.3.1 Excluding the credit activity Trade receivables and other receivables correspond for the most part to receivables on franchises, participation in advertising costs and supplier commercial cooperation fees, and prepaid expenses. These transactions do not involve signiﬁcant risk. Impairment excluding credit activity Available -for-sale assets 5 (1) 0 0 (in M€) Financial assets and trade receivables 123 7 (1) (1) At 1 January 2008 Net impairment Change in consolidation scope 34.3 Credit risk The Group works solely with leading banks for ﬁnancing and interest rate and foreign exchange derivatives transactions. Counterparty risk is therefore not material. With regard to investments, the Group’s policy is to invest cash surpluses with counterparties with an A1 or P1 money-market management rating. Given the current background, these criteria were Foreign currency translation adjustment At 31 December 2008 4 128 50 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 34.3.2 Management of customer credit risk by Banque Accord (credit activity) Credit risk mainly concerns loans granted to individuals. The risk is spread over a large number of customers with limited unit commitments. Banque Accord’s credit risk is managed and monitored by the subsidiaries or the partners’ Risk departments, the Group Risk department and the Internal Audit department through Risk committee meetings. For France and Portugal, risk is managed and monitored by the local Risk departments. In the case of the other countries, the partner is responsible for managing credit risk as it is the partner’s customer processes and system that determine the risk. In the case of joint ventures that have a local Risk department (the case of Spain) risk is monitored by the local structure and by the Group Risk department and the local Risk department can, if appropriate, participate in or develop projects with the partner. In all cases, risk is monitored by the Group Risk department. These committees are responsible for managing credit risks and overseeing projects that have an impact on these risks. They validate the risk management policy, ensure the effectiveness of the existing systems, and take decisions regarding any modiﬁcation of the risk chain and risk rating system, validate the procurement budget and cost of the risk for a new product, and are responsible for maintaining the documentation for the following: opening of all credit or payment products, management of ceilings and collection. Regular committee meetings held at national and Group level validate the strategy, methodology implemented and above all the performance achieved in terms of risk management. The credit decision systems are based on a statistical approach, supported by an examination of each loan application and adapted to the different types of product and customer. These systems incorporate : • scores; • clearly established refusal rules; • rules concerning justiﬁcations to be supplied. Compliance with the credit decisions based on the scores and rules, which are very seldom waived, ensures tight risk control. Exceptions and the persons qualiﬁed to make exceptions are deﬁned by procedures and are normally checked retrospectively. These exceptions are designed to ensure personalised management of loan approvals for larger amounts or intended for targeted customer bases. The signs of pressure on credit risk observed in Spain in 2007 turned into a genuine credit crisis in 2008. Like its competitors, the Spanish subsidiary had to deal with an unprecedented level of payment defaults and drastically reduce its loan production. In accordance with its primary role, Banque Accord therefore refocused on production through its partner store chains. The difﬁculties encountered in collecting debt from defaulting customers and the number of customers in this situation resulted in the recognition of an unprecedented level of provisions for outstanding loans. Given the measures already taken in terms of loan production and debt collection, the situation is expected to stabilise in 2009 before improving signiﬁcantly in 2010. The global economic background has affected Banque Accord’s other subsidiaries to varying degrees, but the impact on risk is reduced in paris on with Spain. Generally speaking, efforts were already made, and will be made to an even greater extent in 2009, on debt collection performance. The French operations have received authorisation from the French banking regulator (Commission bancaire) the Basel II IRBA accreditation for credit risks, and the Portuguese subsidiary will apply for authorisation in 2009. Aged balance of past due loans As soon as a payment default occurs, impairment is recognised on the corresponding customer loans and receivables. Banque Accord does not have past due outstanding loans in respect of which impairment has not been recognised. Impairment of credit activity (in M€) Customer loans Banque Accord Other 3 (3) 0 3 0 Total 226 54 0 0 0 At 1 January 2008 Net impairment Change in consolidation scope Reclassiﬁcation Foreign currency translation adjustment 223 57 0 (3) 0 At 31 December 2008 277 3 280 34.4 Liquidity risk The Group’s policy is to permanently maintain adequate medium and long-term funding to cover its needs at the bottom of the seasonal cycle and provide it with a safety margin. 34.4.1 Risk of early call on ﬁnancial debt The medium and long-term bank financing facilities contain the usual commitments and default clauses for this type of contract, i.e. undertaking to maintain the loan at its initial level of seniority (paripassu), limits on the collateral provided to other lenders (negative pledge), limits on substantial asset sales, cross-default and material adverse change clauses. Groupe Auchan SA and Banque Accord’s Euro Medium Term Note (EMTN) programme, under which bonds are issued, contains an undertaking limiting surety provided to other bond holders (negative pledge) and a cross-default clause. 2008 FINANCIAL REPORT AUCHAN 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS None of the ﬁnancial borrowings include any commitment or default clause linked to any deterioration in the Group’s ratings. Some medium and long-term bank financing facilities contain a “callability” clause in the event of non-compliance with the following ratio at the balance sheet date: Net consolidated debt /consolidated EBITDA < 3.5 The Group complied with this ratio at 31 December 2007 and 2008; the calculation is as follows: (in M€) In view of its property management activity, the ﬁnancing of Gallerie Commerciali Italia (51%-owned by Groupe Auchan SA and 49% by Simon Property Group) carries a commitment to comply with certain speciﬁc ﬁnancial ratios, including: loan to value ratio, interest coverage ratio, debt servicing ratio, repayment capacity ratio (net debt/ EBITDA). These ratios were complied with at 31 December 2008. In addition, Gallerie Commerciali Italia, consolidated using the proportionate method, has issued convertibles bonds for an amount of €120 million, entirely subscribed by Auchan Coordination Services. At 31 December 2008, the company had used €100 million of its drawing right. This issue enabled the company to reﬁnance the short-term portion of its main bank credit facility. Repayment of the convertible bonds is subordinate to the repayment of the other two tranches of its main bank credit facility. 2008 2,820 2,260 = 1.25 2007 2,066 2,070 = 1.00 Net debt(1) EBITDA(2) (1) See note 35. (2) Recurring operating income before other operating income and expenses and before depreciation, amortisation and provisions (before allowances to and reversals of provisions and impairment, except for allowances to and reversals of impairment on inventories). 34.4.2 Exposure to liquidity risk The residual contractual maturities of ﬁnancial liabilities break down as follows (including payment of interest). Excluding the credit activity (transactions in € million at 31 December 2008) Non-derivative ﬁnancial liabilities Carrying amount Bonds Bank borrowings Finance leases Other borrowings Trade payables Other current liabilities Other non-current liabilities Current tax liabilities Current credit facilities 2,903 954 222 891 7,591 2,808 42 75 385 Contractual cash ﬂow Total 3,341 995 244 952 7,591 2,808 42 75 385 < 1 year 122 543 27 812 7,589 2,637 0 75 385 1 to 5 years 2,183 448 85 84 2 127 39 0 0 > 5 years 1,036 4 132 56 0 44 3 0 0 Total Derivative ﬁnancial liabilities 15,871 16,433 12,190 2,968 1,275 Contractual cash ﬂow (-) = outﬂow Carrying amount Total 19 (254) 245 < 1 year 6 (254) 245 1 to 5 years 13 0 0 > 5 years 0 0 0 Interest rate swaps used as hedges(1) Forward exchange contracts used as hedges: Cash outﬂow Cash inﬂow Other forward exchange contracts: Cash outﬂow Cash inﬂow 19 (10) 0 0 0 0 0 0 0 0 0 (1) Carrying amount: excluding accrued interest not yet due. €46 million of accrued interest receivable is recognised under current derivative ﬁnancial assets. 52 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Credit activity (transactions in M€ at 31 December 2008) Non-derivative ﬁnancial liabilities Carrying amount Bonds Bank borrowings Other ﬁnancial liabilities Other liabilities (including bank overdrafts) Trade payables Other current liabilities Other non-current liabilities Current tax liabilities 766 672 917 181 34 86 0 0 Contractual cash ﬂow Total 817 686 922 181 34 86 0 0 < 1 year 187 556 918 181 34 86 0 0 1 to 5 years 630 130 1 0 0 0 0 0 > 5 years 0 0 3 0 0 0 0 0 Total Derivative ﬁnancial liabilities 2,656 2,726 1,962 761 3 Contractual cash ﬂow Carrying amount Total 11 1 < 1 year 7 1 1 to 5 years 4 0 > 5 years 0 0 Interest rate swaps used as hedges Cap 11 1 34.5 Interest rate risk The Group uses interest rate derivatives with the sole aim of reducing its exposure to the impact of changes in interest rates on its debt. Transactions in the derivatives markets are carried out solely for hedging purposes. Derivative instruments are recognised as at the transaction date. Other ﬁnancial assets and liabilities are recognised as at the settlement date. 34.5.1 Excluding the credit activity 34.5.1.1 Interest rate hedges Fair value hedges Interest rate transactions designated as fair value hedges concern transactions designed to change bond debt into ﬂoating-rate debt (euro and Swiss franc) and change ﬂoating-rate intra-Group loans (rouble) into ﬁxed-rate debt. The currencies of these transactions are the euro, the Swiss franc and the rouble. The fair value of these instruments in the balance sheet was €118 million at 31 December 2008 compared with a negative ﬁgure of €3 million at 31 December 2007. Cash ﬂow hedges Interest rate transactions designated as cash ﬂow hedges concern swap operations in which Auchan is a ﬁxed-rate borrower and ﬂoating rate lender. The purpose of these hedges is to ﬁx the interest rate of part of the ﬂoating-rate debt, and thus secure future ﬁnancial income (Y+1 to Y+4 maximum) by limiting possible volatility. The maturity of these hedges does not exceed 4 years. The contractual ﬂows linked to interest rate swaps that qualify as cash ﬂow hedges are paid at the same time as the contractual ﬂows on ﬂoating-rate loans. The deferred amounts recognised in equity will be recognised in income for the period in which the interest on the debt affects income. At 31 December 2008, the currencies concerned by these transactions were the euro, the zloty and the forint. The fair value of these instruments in the balance sheet at 31 December was a liability of €12 million compared with an asset of €5 million at 31 December 2007. A negative amount of €12 million was charged to reserves at 31 December 2008 for interest rate transactions designated as cash ﬂow hedges compared with a positive amount of €5 million at 31 December 2007. 2008 FINANCIAL REPORT AUCHAN 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The table below shows the periods in which the Group expects cash ﬂows linked to derivative ﬁnancial instruments qualiﬁed as cash ﬂow hedges to have an impact on the income statement. At 31 December 2008 (in M€) Carrying amount Interest rate swaps: Assets Liabilities 1 13 3 17 2 6 1 11 0 0 Contractual cash ﬂow (+)= inﬂow Total < 1 year 1 to 5 years > 5 years 34.5.1.2 Exposure to interest rate risk after management and excluding the credit activity (in M€) 2008 617 1,024 1,935 4,332 2007 1,075 2,987 1,458 1,497 Fixed rate ﬁnancial assets Fixed rate ﬁnancial liabilities Floating rate ﬁnancial assets Floating rate ﬁnancial liabilities 34.5.1.3 Sensitivity analysis The analysis of the sensitivity of cash ﬂows on ﬂoating-rate instruments takes into account all the variable income ﬂows on derivative and non-derivative instruments. The analysis is carried based on the assumption that the amount of debt and derivatives at 31 December remains constant over 1 year. For the purpose of this analysis, all other variables, notably foreign exchange rates, are assumed to remain unchanged. Impact on the income statement An increase of 100 basis points in interest rates for all currencies would generate a €29 million increase in the cost of ﬁnancial debt based on the ﬁnancial situation at 31 December 2008. It represented an increase of €3 million at 31 December 2007. A decrease of 100 basis points in interest rates for all currencies would generate a €29 million decrease in the cost of ﬁnancial debt based on the ﬁnancial situation at 31 December 2008. It represented a decrease of €8 million at 31 December 2007. Impact on equity An increase of 100 basis points in interest rates for all currencies would generate a €15 million increase in equity based on the ﬁnancial situation at 31 December 2008. It represented an increase of €5 million in 2007. A decrease of 100 basis points in interest rates for all currencies would generate a €15 million decrease in equity based on the ﬁnancial situation at 31 December 2008. It represented a decrease of €4 million in 2007. 34.5.2 Credit activity 34.5.2.1 Interest rate hedges Fair value hedge Interest rate transactions designated as fair value hedges concern swap operations in which Banque Accord is a ﬁxed-rate lender and ﬂoating-rate borrower (Euribor 3 or 6 months). These hedges were set up at the inception of ﬁxed-rate bonds or bank borrowings to convert them into ﬂoating-rate debt. The currency of these transactions is the euro. The net fair value of these instruments in the balance sheet at 31 December 2008 was €0.4 million compared with €1 million at 31 December 2007. Cash ﬂow hedge Interest rate transactions designated as cash ﬂow hedges concern swap operations in which Banque Accord is a ﬁxed-rate borrower and ﬂoating-rate lender. The purpose of these hedges is to ﬁx the interest rate on part of the forecast floating-rate debt, and thus secure future ﬁnancial income (Y+1 to Y+5 maximum) by limiting possible volatility. The horizon of these hedges does not exceed 5 ears. The currency of these transactions is the euro. The net fair value of these instruments in the balance sheet at 31 December 2008 was €11 million compared with €3 million at 31 December 2007. A negative amount of €11 million was charged to reserves at 31 December 2008 in respect of interest rate transactions qualiﬁed as cash ﬂow hedges compared with a positive amount of €2 million at 31 December 2007. 54 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The table below shows the periods in which the Group expects cash ﬂows linked to derivative ﬁnancial instruments qualiﬁed as cash ﬂow hedges to have an impact on the income statement. At 31 December 2008 (in M€) Carrying amount Interest rate swaps + CAP: Assets Liabilities 0 12 0 12 0 8 0 4 0 0 Contractual cash ﬂow (+)= inﬂow Total < 1 year 1 to 5 years > 5 years 34.5.2.2 Exposure to interest rate risk after management (in M€) 34.6.1 Foreign exchange hedges 2007 693 410 1,642 1,944 2008 904 505 1,477 1,885 Fixed rate ﬁnancial assets Fixed rate ﬁnancial liabilities Floating rate ﬁnancial assets Floating rate ﬁnancial liabilities Derivative foreign exchange instruments are used to limit the impact of fluctuations in exchange rates on the Group’s currency requirements and on the value of the net assets of some Group subsidiaries. Transactions on the derivative markets are undertaken solely for hedging purposes. Foreign exchange transactions concern only the currencies indicated in the table below. Fair value hedge Foreign exchange hedges are not documented for hedge accounting purposes since they are offset in the income statement by matching the fair value gains or losses on assets and liabilities. The net fair value of these instruments in the balance sheet came to €12 million at 31 December 2008 compared with €4 million in 2007. Cash ﬂow hedge Foreign exchange transactions qualiﬁed as cash ﬂow hedges include currency swaps and forward currency purchases/sales. These transactions are used to hedge forecast procurement outﬂows denominated in foreign currencies. The risk hedged by these transactions is principally EUR/USD exchange risk. The net fair value of these instruments in the balance sheet came to €5 million at 31 December 2008 compared with a liability of €4 million in 2007. At 31 December 2008 an amount of €5 million was recognised in reserves compared with a charge of €13 million at 31 December 2007. 34.5.2.3 Sensitivity analysis Impact on the income statement An increase of 100 basis points in interest rates for all currencies would generate a €6 million increase in the cost of ﬁnancial debt based on the ﬁnancial situation at 31 December 2008. It represented an increase of €1 million at 31 December 2007. A decrease of 100 basis points in interest rates for all currencies would generate a €4 million decrease in the cost of ﬁnancial debt based on the ﬁnancial situation at 31 December 2008. It represented a decrease of €5 million at 31 December 2007. Impact on equity An increase of 100 basis points in interest rates for all currencies would generate a €7 million increase in equity based on the ﬁnancial situation at 31 December 2008. It represented an increase of €11 million at 31 December 2007. A decrease of 100 basis points in interest rates for all currencies would generate a €9 million decrease in equity based on the ﬁnancial situation at 31 December 2008. It represented a decrease of €7 million at 31 December 2007. 34.6 Foreign exchange risk Auchan is exposed to foreign exchange risk on purchases, sales and loans denominated in a currency other than the euro and on the value of subsidiaries’ net assets in foreign currencies. At 31 December 2008, the main currencies concerned were the US dollar (USD), Polish zloty (PLN), Hungarian forint (HUF), Russian rouble (RUB), Taiwanese dollar (TWD) and Japanese yen (JPY). Derivative instruments are recognised as at the transaction date. Other ﬁnancial assets and liabilities are recognised as at the settlement date. 2008 FINANCIAL REPORT AUCHAN 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The table below shows the periods in which the Group expects cash ﬂows linked to derivative ﬁnancial instruments qualiﬁed as cash ﬂow hedges to have an impact: At 31 December 2008 (in M€) Carrying amount Foreign exchange swaps: Assets Liabilities Forward foreign exchange contracts: Assets Liabilities 117 (112) 117 (112) 117 (112) 0 0 0 0 0 0 Contractual cash ﬂow (+)= inﬂow Total < 1 year 1 to 5 years > 5 years Net assets hedge The hedges set up are designed to protect part of the net assets of subsidiaries against foreign exchange risk. The purpose of these hedges is to neutralise ﬂuctuations in the carrying amount in euro of part of the net assets (deﬁned as the sum of the equity of the subsidiaries concerned and goodwill). These hedges take the form of deliverable forward contracts or non-deliverable forwards when conventional forwards are not possible. The maturity for this type of hedge is 1 year. The net fair value of these instruments in the balance sheet came to €8 million at 31 December 2008 compared with €9 million in 2007. 34.6.2 Exposure to foreign exchange risk excluding net assets hedge At 31 December 2008 (in M€) Intra-Group loans Trade payables Gross balance sheet exposure USD 96 (67) 29 PLN 299 0 299 HUF 282 0 282 JPY 25 0 25 RUB 142 0 142 Estimated forecast purchases Gross exposure (335) (306) 0 299 0 282 0 25 0 142 Forward foreign exchange contracts Foreign exchange options 260 (17) (299) 0 (282) 0 (25) 0 (142) 0 Net exposure (63) 0 0 0 0 34.6.3 Sensitivity analysis (excluding foreign exchange translation reserves) This sensitivity analysis assumes that variables other than exchange rates (notably interest rates) remain constant. An increase of 10% in the euro exchange rate against other currencies, based on the ﬁnancial situation at 31 December 2008, would result in a decrease in income and equity for the amounts indicated below. The impact on equity corresponds to cash ﬂow hedges on estimated forecast purchases. Impact in M€ USD A fall of 10% in the euro exchange rate against other currencies, based on the ﬁnancial situation at 31 December 2008, would result in an increase in income and equity for the amounts indicated below. The impact on equity corresponds to cash ﬂow hedges on estimated forecast purchases. Impact in M€ USD Equity (37) Gains or losses (6) Equity 31 Gains or losses 6 56 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 34.7 Other risks The Group does not enter into hedging transactions other than foreign exchange and interest rate derivatives transactions. 34.8 Table of market values (in M€) 2008 Market value Carrying amount 60 439 2,818 383 38 2,484 2,345 1,310 1,035 235 2,903 2,231 222 42 2,536 7,625 75 2,894 44 2007 Market value 133 338 2,793 383 62 2,292 2,395 1,433 962 77 2,393 1,840 280 10 2,430 7,525 67 2,791 54 Carrying amount 133 338 2,793 383 62 2,292 2,395 1,433 962 77 2,393 1,840 251 10 2,430 7,525 67 2,791 54 Investments in non-consolidated companies Other non-current ﬁnancial assets Customer loans Trade receivables Current tax assets Other current receivables Cash and cash equivalents(1) Amortised cost Fair value through proﬁt or loss Derivative ﬁnancial instruments – assets Bonds(1) Bank loans and borrowings, other ﬁnancial liabilities and bank Obligations under ﬁnance leases Other non-current liabilities Debt ﬁnancing the credit activity Trade payables Current tax liabilities Other current liabilities Derivative ﬁnancial instruments – liabilities (1) Excluding credit activity. 60 439 2,818 383 38 2,484 2,345 1,310 1,035 235 2,903 overdrafts(1) 2,231 247 42 2,536 7,625 75 2,894 44 Note 35 NET DEBT (excluding ﬁnancing of the credit activity) 2008 5,356 3,655 1,701 Note 36 (in M€) OTHER NON-CURRENT LIABILITIES 2008 7 2 33 2007 6 0 4 (in M€) 2007 4,484 2,603 1,881 Amounts due on investments Tax liabilities Other liabilities(1) Borrowings and other ﬁnancial liabilities non-current current Total 42 10 Derivatives Liabilities non-current current Assets non-current current (191) 31 13 (23) 43 11 (1) Including €27 million in 2008 in respect of Russian employee incentive schemes, unavailable for 3 years. (This item was presented in “Other current liabilities” in 2007). (126) (109) (44) (33) Cash and cash equivalents Net debt (2,345) 2,820 (2,395) 2,066 2008 FINANCIAL REPORT AUCHAN 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 37 (in M€) TRADE PAYABLES, CURRENT TAX LIABILITIES AND OTHER CURRENT LIABILITIES 2008 7,625 7,057 568 2007 7,525 6,959 566 Trade payables Trade payables, merchandise Trade payables, general expenses Current tax liabilities Other current liabilities Amounts due on investments Tax and social security Other payables(1) Deferred income 75 2,894 556 1,654 419 265 67 2,791 476 1,623 453 239 Total (1) Includes €79 million at end 2007 in respect of receipt of proceeds on the disposal of the Mexican activity (see note 21.2). 10,594 10,383 Note 38 LEASES The Group leases a number of stores, warehouses, shopping centres and head ofﬁce premises under ﬁnance leases. The leases generally run for a period of 10 years, with an option to renew the lease after that date. 38.1 Finance leases as lessee Minimum future lease payments under ﬁnance lease agreements: 2008 (in M€) 2007 Principal 24 69 129 Total 61 112 175 Interest 12 38 47 Principal 49 74 128 Total 36 106 164 Interest 12 37 35 Less than 1 year 1 to 5 years More than 5 years Total 306 84 222 348 97 251 Conditional rent (based on actual sales) came to €1 million in 2008 compared with €2 million in 2007. At 31 December 2008, total future minimum lease payments and sub-lease agreements that the Group expects to receive on non-cancellable agreements came to €14 million (€15 million in 2007). 38.2 Operating leases as lessee Minimum future lease payments on non-cancellable lease agreements (in M€) 38.3 Lease expenses and sub-lease income recognised in the income statement (in M€) 2008 296 898 1,344 2007 227 695 1,066 2008 320 21 (26) 2007 250 7 (17) Less than 1 year 1 to 5 years More than 5 years Minimum payments Conditional rents (based on actual sales) Sub-leasing revenue Total 2,538 1,988 Total 315 240 At 31 December 2008, total future minimum lease payments and sub-lease agreements that the Group expects to receive on noncancellable agreements came to €53 million (€54 million in 2007). 58 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 38.4 Operating leases as lessor The Group leases out part of its investment property under operating leases. Minimum future lease payments to be received under non-cancellable leases (in M€) Remuneration of corporate ofﬁcers Total compensation (including directors’ fees) paid to corporate officers of Groupe Auchan SA and the parent companies of the Group’s four businesses amounted to €3.6 million in 2008, and broke down as follows : – Short-term beneﬁts (including directors’ fees) – Share-based payments – Post-employment beneﬁts Associates Information relating to associates accounted for by the equity method is provided in note 19. Transactions with associates were immaterial. No signiﬁcant commitments have been entered into with these companies. With regard to the 21% stake in Ukrainian supermarket operator, Furshet, there are options, exercisable from 2014 and up to 2021, enabling Auchan to sell or the partner to acquire this interest if a signiﬁcant change in the capital of Furshet occurs, or if the commitment to buy back the shares in the Ukrainian hypermarket partner company is exercised. (At 31 December 2008, the said shares were still 100% owned by Auchan). Joint ventures The Group has concluded partnerships in the Hypermarkets and Property Management businesses in China and Poland (Schiever Polska), in Property Management in Italy and in Banking in Spain. The list of the most signiﬁcant joint ventures, under joint control and consolidated by the proportionate method, is given in note 46. Transactions with these companies are carried out at arms length conditions. €2.5 million €1.0 million €0.1 million 2008 283 945 543 2007 274 877 558 Less than 1 year 1 to 5 years More than 5 years Total 1,771 1,709 Conditional rent included in income for the year came to €46 million compared with €18 million in 2007. Assets received as guarantees: The Group receives guarantee deposits for investment property that it leases. The historical value is a good estimate of fair value for guarantee deposits. The total amount received in guarantee deposits in 2008 came to €57 million compared with €52 million in 2007. The general conditions of use are as follows: A guarantee deposit corresponds to 3 months rent. This amount is reviewed annually. The deposit is held by the lessor until the tenant departs, and is reimbursed in full if no rent is outstanding. Note 39 TRANSACTIONS WITH RELATED PARTIES The Group has relations with its subsidiaries (fully consolidated), with equity associates (consolidated using the equity method) and with jointly controlled ventures (consolidated using the proportionate method). Related party having control over the Group The capital of Groupe Auchan SA is 87%-owned by companies belonging to Association Familiale Mulliez, with one company holding a 57% share. No material transactions (more than €1 million) were carried out with these companies apart from the dividend paid in respect of 2007, which amounted to €155 million, and a services agreement in respect of which €1.5 million was billed in 2008. 2008 FINANCIAL REPORT AUCHAN 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 40 INTERESTS IN JOINT VENTURES The consolidated ﬁnancial statements include the following items that represent the Group’s interests in the assets, liabilities, revenues and expenses of joint ventures consolidated by the proportionate method: (in M€) 2008 1,509 805 393 1,201 2,184 484 422 5 2007 1,328 611 481 832 1,728 380 314 24 Non current assets Current assets Non-current liabilities Current liabilities Revenue Gross proﬁt Operating expenses(1) Net income (1) Payroll expenses, external expenses, depreciation, amortisation and provisions. Furthermore, the non-cancelled portion of receivables and liabilities relating to companies consolidated by the proportionate method appears in the consolidated balance sheet for the following amounts: (in M€) 2008 24 59 2007 25 10 Customer loans – credit activity Other non-current ﬁnancial assets Non current assets Customer loans – credit activity Trade receivables Other current receivables 83 63 2 22 35 64 4 7 Current assets Non-current ﬁnancial liabilities 87 6 75 0 Non-current liabilities Trade payables Other current liabilities 6 1 3 0 0 3 Current liabilities Revenue Gross proﬁt Operating expenses(1) (1) Payroll expenses, external expenses, depreciation, amortisation and provisions. 4 29 4 4 3 32 0 4 Other non-current ﬁnancial assets includes €49 million corresponding to loans granted to GCI (Property Italy) in 2008. 60 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 41 (in M€) DETAILS OF CERTAIN ITEMS OF THE CONSOLIDATED CASH FLOW STATEMENT 2008 (83) (174) 2 161 (72) 78 (28) 106 (68) (108) 40 54 46 0 8 (192) (180) (12) 825 2,562 (1,737) 1,207 (807) (199) (4) 394 8 0 3 (203) (55) 45 11 (300) 278 (10) (379) (23) 540 (137) (22) 2007 1 Change in working capital Inventories Trade receivables Trade payables Other assets and liabilities Changes in items relating to the credit activity Customer loans – credit activity Debt ﬁnancing the credit activity Change in loans and advances Increase in loans and advances Decrease in loans and advances Sums received from shareholders on capital increases Paid by the shareholders of the parent company Paid on exercise of stock options Paid by minority shareholders of consolidated companies Dividends paid during the ﬁnancial year Dividends paid to shareholders of the parent company Dividends paid to minority shareholders of consolidated companies Debt proceeds Loans issued Repayments of loans (including ﬁnance leases) Note 42 POST-BALANCE SHEET EVENTS No signiﬁcant event has occurred since the balance sheet date. Note 43 CONTINGENT LIABILITIES Group companies are involved in a certain number of lawsuits or disputes that arise in the normal course of business, including disputes with the tax authorities. Provisions for contingent liabilities are made for the estimated cost when considered probable by the Group and its external counsels. To the Group’s knowledge, there is no exceptional event or litigation that could substantially affect the business, results, assets or ﬁnancial situation of the Group and/or its subsidiaries, which is not adequately covered by provisions. In Italy, litigation in connection with a tax dispute relating to reassessment of direct and indirect tax in respect of the 1998 to 2003 ﬁnancial years has been underway at SMA since December 2003. In December 2008, The Milan Regional Administrative Court (Commissione Tributaria Regionale) approved the tax authorities’ appeal relating to 2001 and 2002 (even though four earlier court decisions on similar subjects had been issued in favour of SMA). The amount of the tax reassessment for the 2 years in question comes to €68 million (excluding interest). The company has consulted a reputed, independent tax counsel to assess the risk on this dispute. Based on the supporting evidence and related court decisions, the company and the independent counsel have estimated that the risk of a ﬁnal judgment conﬁrming the reassessment is small. No other claim is individually signiﬁcant at the Group level. 2008 FINANCIAL REPORT AUCHAN 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 44 COMMITMENTS The commitments at 31 December 2007 and 2008 were as follows. Commitments of proportionately consolidated companies are shown proportionately: 44.1 Commitments given 2008 (in M€) 2007 Total 4,056 92 28 317 13 404 56 92 Total 3,983 9 132 224 69 414 121 75 Of which joint ventures 176 2 0 0 0 65 5 12 Of which joint ventures 122 4 0 0 0 85 44 11 Customer ﬁnancing commitments(1) Guarantees given Firm commitments to purchase shares(2) Land and property purchase options of which on investment property Conditional purchase of future non-current assets of which investment property Other commitments given (1) This amount corresponds to commitments given by Banque Accord and its subsidiaries on credit cards with current activity during the past 2 years. The commitment on credit cards inactive for more than 2 years came to €5,165 million at 31 December 2008 compared with €5,474 million in 2007. (2) In accordance with IAS 32, share purchase commitments given to minority shareholders of fully consolidated companies are not included under commitments. They are recognised in debt at their present value. In accordance with law No. 2004-391 of 4 May 2004 concerning professional training, employees of the French companies of the Group beneﬁt from a credit of 20 hours per year. This can be accumulated over 6 years with a ceiling of 120 hours. Any training given within the framework of the individual entitlement to training is allocated to the training hours already acquired. The total number of training hours acquired by employees and not yet consumed at 31 December 2008 came to 2 million hours. 44.2 Secured liabilities 2008 (in M€) 2007 Total 459 363 358 5 14 90 Total 513 414 414 0 1 89 Of which joint ventures 20 414 414 0 0 0 Of which joint ventures 26 358 358 0 0 0 Guaranteed debts Debts guaranteed by collateral mortgage pledge Debt guaranteed by credit lines Standby letters of credit 62 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 44.3 Long and medium-term lines of credit obtained and conﬁrmed by the banks but unused at 31 December 2008 Group (in M€) Excluding credit activity Total 132 2,131 0 Credit activity Total 0 637 0 Total 132 2,768 0 Of which joint ventures 65 73 0 Of which joint ventures 65 73 0 Of which joint ventures 0 0 0 Less than 1 year 1 to 5 years More than 5 years Total 2,900 138 2,263 138 637 0 44.4 Put and call options As from 2010, some of the Group’s partners have an option to sell to Auchan or its subsidiaries the shares they hold at the market price. These shares relate to companies not consolidated by the full consolidation method. The Group has not been able to quantify these commitments reliably given the uncertainty relating to the amounts concerned due to the situation in the ﬁnancial markets. The commitments given by GCI (Property activity in Italy) and Banque Accord with regard to call options concerning companies that are not fully consolidated amounted to €57 million (commitments given by a proportionately consolidated company) and €34 million, respectively, in 2008. These options are exercisable between 2009 and 2013.The respective commitments amounted to €153 million and €88 million at the end of 2007. The decrease is attributable to an option not exercised in Italy and the fall in the value of the call option entered into by Banque Accord. The options relating to the shareholding in the Ukrainian Supermarkets operator is described in note 39. Note 45 EMPLOYEES On a ‘‘full-time equivalent basis’’, the Group employed 209,099 people in 2008 (including 100% of the headcount of proportionately consolidated companies) compared with 186,443 in 2007. The biggest changes concerned Russia and China. 2008 FINANCIAL REPORT AUCHAN 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 46 CONSOLIDATION SCOPE List of the main companies consolidated using the full consolidation method at 31 December 2008. % interest Country FRANCE Division/activity HOLDING Company Groupe Auchan SA Auchan Finances 2008 100 100 100 100 100 100 100 90 100 100 100 95 96 100 100 100 99 99 100 100 98 100 100 100 99 100 95 95 2007 100 100 100 100 100 100 100 90 NC NC 100 95 96 100 100 100 97 97 100 100 100 100 100 100 97 100 95 95 HYPERMARKETS Auchanhypers Auchan France and its subsidiaries Auchan e-commerce GrosBill Auchan Direct Chronodrive Auchan Carburant Auchan Service à Domicile Auchan Telecom Eurauchan Alinéa and its subsidiaries Little Extra Auchan International Technologie Organisation Internationale des Achats SUPERMARKETS ISMS Atac and its subsidiaries PROPERTY MANAGEMENT Immochan International Immochan and its subsidiaries BANKING BELGIUM SPAIN HYPERMARKETS Banque Accord and its subsidiary Auchan Coordination Services Alcampo and its subsidiaries Zenalco SUPERMARKETS PROPERTY MANAGEMENT Sabeco and its subsidiaries Immochan España and its subsidiaries Zenor Redarpa 64 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS % interest Country ITALY Division/activity HYPERMARKETS Company Societa Italiana Distribuzione Moderna Auchan Italy and its subsidiaries 2008 99 99 99 98 98 98 100 100 96 100 100 95 59 100 99 59 100 98 98 100 99 59 61 100 98 2007 99 99 97 99 NC NC 100 100 96 100 100 95 60 100 97 60 100 100 99 100 97 60 61 100 NC SUPERMARKETS BANKING IRELAND BANKING BANKING LUXEMBOURG HYPERMARKETS SMA and its subsidiaries Accord Italia Oney Insurance Limited Oney Life Limited Auchan Luxembourg Auchan International PROPERTY MANAGEMENT HUNGARY HYPERMARKETS PROPERTY MANAGEMENT Galerie de Kirchberg Auchan Magyarorszàg Immochan Magyarorszàg Immochan Alapok BANKING POLAND HYPERMARKETS AND PROPERTY MANAGEMENT SUPERMARKETS BANKING PORTUGAL HYPERMARKETS AND PROPERTY MANAGEMENT BANKING ROMANIA RUSSIA BANKING HYPERMARKETS AND PROPERTY MANAGEMENT SUPERMARKETS BANKING TAIWAN UKRAINE HYPERMARKETS AND PROPERTY MANAGEMENT HYPERMARKETS AND PROPERTY MANAGEMENT BANKING NC: not consolidated. Accord Magyarorszàg Auchan Polska and its subsidiaries ISMS Polska and its subsidiary Eléa Accord Finance Auchan Portugal and its subsidiaries Oney (ex-Crédiplus) Accord Intermed Consumer Finance Auchan Russie OIIAH and its subsidiaries Atak and its subsidiaries Ba Finansooo RT Mart International FCAU Oney Ukraine 2008 FINANCIAL REPORT AUCHAN 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS List of the main companies consolidated using the proportionate method at 31 December 2008 % consolidated Country FRANCE SPAIN ITALY % interest 2008 50 51 50 51 50 50 67 33 Division/activity HYPERMARKETS BANKING HYPERMARKETS PROPERTY MANAGEMENT Company Boutique Sainsbury Accordﬁn España Fiordaliso Galleria Commerciali Italia and its subsidiaries Schiever Polska Sun Holding Greater China 2008 50 51 50 51 50 50 67 50 2007 50 51 51 51 50 50 67 50 2007 50 51 51 51 50 50 67 33 POLAND HYPERMARKETS MAINLAND CHINA HYPERMARKETS/ PROPERTY MANAGEMENT Auchan China and its subsidiaries Concord Champion Internat. and its subsidiaries List of the main equity associates at 31 December 2008 % interest Country LUXEMBOURG ITALY ROMANIA UKRAINE Division/activity HOLDING PROPERTY MANAGEMENT HYPERMARKETS/PROPERTY MANAGEMENT SUPERMARKETS Company Valauchan International Participations de GCI MGV Distri-Hiper Anthousa and its subsidiaries 2008 17 See note 19.2 49 21 2007 9 29 21 NC : not consolidated and not accounted for using the equity method. 66 AUCHAN 2008 FINANCIAL REPORT Free translation of a French language original Statutory auditors’ report On the consolidated ﬁnancial statements - Year ended 31 December 2008 To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting, we hereby report to you, for the year ended 31 December 2008, on: • the audit of the accompanying consolidated ﬁnancial statements of Groupe Auchan SA; • the justiﬁcation of our assessments; • the speciﬁc veriﬁcation required by law. These consolidated ﬁnancial statements have been approved by the Executive Board. Our role is to express an opinion on these consolidated ﬁnancial statements based on our audit. by which these impairment tests are performed as well as the assumptions on which these estimates are based. We have veriﬁed that note 3.13 to the consolidated financial statements provides appropriate disclosure. Your Company recognizes provisions as described in note 3.20 to the consolidated ﬁnancial statements. Our procedures consisted in assessing the information and assumptions on which these estimates were based, reviewing the calculations performed by the Company on a test basis and examining the procedures used by management to approve these estimates. We have examined the relevance of the methodology used by the Company on the basis of the related available documentation. These assessments were made in the context of our audit of the consolidated ﬁnancial statements taken as a whole, and therefore contributed to the opinion we formed which is expressed in the ﬁrst part of this report. 1. Opinion on the consolidated ﬁnancial statements We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated ﬁnancial statements are free of material misstatement. An audit involves performing procedures, on a test basis or by selection, to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as the overall presentation of the consolidated ﬁnancial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In our opinion, the consolidated ﬁnancial statements give a true and fair view of the assets and liabilities and of the ﬁnancial position of the Group as at 31 December 2008 and of the results of its operations for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. 3. Speciﬁc veriﬁcation As required by law we have also veriﬁed the information given in the Group’s management report. We have no matters to report as to its fair presentation and its consistency with the consolidated ﬁnancial statements. Paris La Défense and Villeneuve-d’Ascq, 19 March 2009 The Statutory Auditors KPMG Audit Department of KPMG SA Didier de Ménonville Christophe Segard aCéa 2. Justiﬁcation of our assessments Accounting estimates related to the preparation of the consolidated ﬁnancial statements as at 31 December 2008 have been performed in a speciﬁc context where economic perspectives are hardly predictable. These conditions are described in note 3.3 “Use of estimates” to the consolidated ﬁnancial statements. In that context and in accordance with the requirements of article L. 823-9 of the French Commercial Code (‘‘Code de commerce’’) relating to the justiﬁcation of our assessments, we bring to your attention the following matters. Your Company performs an annual impairment test on goodwill and intangible assets with indeﬁnite lives and also assesses if there is any indication of impairment loss regarding its long-term assets in accordance with the terms and conditions described in note 3.13 and on the basis of the assumptions described in note 3.3 to the consolidated ﬁnancial statements. We have reviewed the methods 2008 FINANCIAL REPORT AUCHAN 67 Communication department with responsibility for sustainable development – 92, rue Réaumur – 75002 Paris-France Tel.: +33 (0)1 58 65 08 08 – Fax: +33 (0)1 58 65 08 15 www.groupe-auchan.com Design and production: – April 2009.

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