Table of contents 3 Chairman’s message 4 Simplified organization chart at December 31, 2004 and key figures
6 MANAGEMENT REPORT 6 Highlights 9 Business review 15 Financial review 19 Capital and shareholder information 22 Social and environmental information 26 Corporate governance
36 REPORT FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS
46 CONSOLIDATED FINANCIAL STATEMENTS
90 TRANSITION TO IFRS
100 COMPANY FINANCIAL STATEMENTS
119 Resolutions presented to the Annual General Meeting of June 8, 2005 123 Other information
Rallye
Head Office: 83, rue du Faubourg Saint-Honoré 75008 Paris Phone: 33-1 44 71 13 73 Fax: 33-1 44 71 13 70 Joint stock corporation with share capital of €112,223,547 054 500 574 RCS Paris This document is a free translation from parts of the French language Internet: http://www.rallye.fr original annual report. The company cannot be held responsible for any E-mail: [email protected] errors or omissions arising from its translation into English. Board of Directors – Executive management – Statutory Auditors
BOARD OF DIRECTORS EXECUTIVE MANAGEMENT Jean-Charles NAOURI Jean-Charles NAOURI Chairman Chief Executive Officer André CRESTEY Didier CARLIER Vice-Chairman Deputy Managing Director Didier CARLIER Catherine SOUBIE Representing société Foncière Euris Deputy Managing Director Jean CHODRON de COURCEL Jacques DERMAGNE STATUTORY AUDITORS Jacques DUMAS BARBIER FRINAULT & Autres Pierre FÉRAUD Represented by Henri-Pierre NAVAS Jean-Marie GRISARD KPMG Audit – Département de KPMG SA Represented by Catherine CHASSAING Representing société Finatis Jean LÉVY Christian PAILLOT Catherine SOUBIE Representing société Groupe Euris Gilbert TORELLI Julien CHARLIER Censor Chairman’s message
Nonetheless, Groupe Go Sport reported an operating loss of €7million, as a result of special offers and non-recurring expenses.
▲ Jean-Charles NAOURI Rallye’s consolidated income was shaped mainly by growth in Casino’s earnings, and also by strong performance from its financial investments portfolio. Net operating income, group’s share increased by 37.6% to €139 million, although net income, group’s share fell to €55 million, from €108 million in 2003, as a result of a €70 million exceptional expense, resulting from a change in the capital gains tax. Although the incidence of this exceptional expense in the accounts for 2004 was negative, the tax reform will be beneficial for the Group since, beginning January 1, 2007, over 90% of Rallye’s assets will be free of tax. Based on these figures altogether, the Board of Directors has decided to submit a dividend proposal of €1.68 per share (up from €1.60 last year) for approval by the Shareholders’ Meeting. Rallye also took advantage of favorable market conditions in 2004 to issue €1 billion in bonds, in two issues, and to renew its Rallye’s main subsidiary, Casino, reported strong performance in syndicated loan facility, thereby increasing available funds to 2004, despite deterioration in consumer spending in its domestic €2.4 billion at the end of 2004. This strong financial structure will market. Operating income increased by 4.7% and after-tax income enable Rallye to support the long-term development of its from current operations by 10.8%. In France, Casino benefited subsidiaries. from its multiformat positioning, which is suited to current trends Rallye’s future for the next few years is bright, given the growth in consumer spending. This strategy enabled the Group to potential of its subsidiaries. Casino, in particular, has a strong maintain its operating margin, by increasing the cost flexibility of its earnings base in France and significant international potential. The stores, and to continue to benefit from growth in the discount change in Casino’s corporate governance, with the decision to segment, while bolstering the competitiveness of its store chains. combine the positions of Chairman of the Board and Chief International operations continued to generate new growth and Executive Officer, reflects my steadfast determination to grow reported a significant improvement in their margins, as well as a this company for the benefit of customers, employees and 76.5% increase in their contribution to Casino’s consolidated shareholders. At Groupe Go Sport, the management team’s strategy operating income. will ensure margin recovery, driven by fresh growth in sales. At Groupe Go Sport, 2004 was a transition year, which saw the Lastly, I would like to take this opportunity to once again thank all arrival in April of a new management team. After a difficult first the Group’s employees for their unflagging commitment, and all half of the year, sales improved in the last two quarters. of our partners for their confidence and support.
2004 Annual report ■ RALLYE 2/3 Simplified organization chart at December 31, 2004
50.63%* (63.80% voting rights) ▲ CASINO
71.72% RALLYE (80.40% voting rights) ▲ GROUPE GO SPORT
Financial ▲ investment portfolio
Companies listed on the French Stock Exchange Market. * Percentage of common shares.
MAJOR KEY FIGURES
(in € millions) 2004 2003 2002
Net sales 23,835 23,768 23,681 Operating income 1,079 1,056 954 Income from current operations 857 782 657 Net income from current operations 529 446 409 Net income 397 426 366 Net income, group’s share 55 108 63 Net income from current operations, group’s share 139 101 84 Net income, group’s share per share €1.59 €3.14 €1.80 Cash flow 1,134 911 923 Group’s shareholders’ equity 778 785 854 Market capitalization at December 31 1,425 1,635 1,373 Average workforce (nb) 124,223 124,143 122,994 Key figures
Net sales by line of business Operating income Net income from current operations, (in %) (in € millions) group’s share (in € millions)
1,056 1,079 139 954 101 84
02 03 04 02 03 04
■ 94.8 Food and general retailing ■ 2.8 Sports good retailing ■ 2.4 Other activities
Net sales by geographic area Net income, group’s share Net income, group’s share, per share (in %) (in € millions) (in €)
125 3.61 108 3.14
63 1.80 55 1.59
35,108,477 34,625,536 34,491,368
02 03 04 04(1) 02 03 04 04 (2)
■ Weighted-average shares outstanding ■ 80.6 France ■ 3.4 Other European countries (1) Restated of a €70 million non-recurring exceptional (2) Restated of a €2.02 per share non-recurring ■ 6.8 North America expense resulting from a change in the taxation of exceptional expense resulting from a change in the ■ 2.8 South America long-term capital gains, requiring the cancellation of taxation of long-term capital gains, requiring the ■ 5.2 Asia previously recorded deferred tax asset. cancellation of previously recorded deferred tax asset. ■ 1.2 Indian Ocean
2004 Annual report ■ RALLYE 4/5 Management report Highlights
■ GOOD PERFORMANCE FOR CASINO ■ A TRANSITION YEAR FOR GO SPORT IN 2004 AND AN INCREASED INTEREST IN FRANPRIX/LEADER PRICE Go Sport experienced a year of transition in 2004 with a new management team appointed in April. The company’s sales policy In 2004, Rallye’s main subsidiary showed positive results once was energized, leading to improved sales, beginning in the third again, in an environment marked by a decline in consumer quarter. Nevertheless, income fell sharply, as a result of special spending in France. Consolidated net sales amounted to offers, non-recurring expenses, and the cost of strengthening its €23,170 million, up by 3.8%, restated for changes in exchange business structures. rates and scope of consolidation. Operating income grew by 4.7%, reaching €1.12 billion, while income from current operations after ■ REINFORCEMENT OF RALLYE AND CASINO’S tax amounted to €613 million, up by 10.8%. Net income, group’s FINANCIAL STRUCTURE share fell slightly, by 0.8%, amounting to €488 million. These good results reflect the effectiveness of Casino’s strategy in In 2004, Rallye continued a proactive financial management France, which focuses on increased competitiveness and on growth policy, stepping up its bond and bank financing. driven by its profitable discount and neighborhood formats, as well – In January 2004, Rallye issued €400 million in bonds maturing as the strong performance of international operations. January 2009, with a 5.375% coupon, and increased the issue to Lastly, in June 2004, Casino increased its strategic interest in €500 million in April 2004. Franprix/Leader Price by increasing its ownership in Franprix Holding – In October 2004, Rallye issued €500 million in bonds maturing from 70% to 95%, and in Leader Price Holding from 70% to 75%, October 2011, with a coupon of 5.625%. for a total of €262.9 million. Under the terms of the new agreement with the Baud family, put options on the remainder of Franprix/Leader Price will be frozen for the next four years, i.e., until 2008.
Casino in France 3 These transactions enabled Rallye to take advantage of favorable ■ SUBSEQUENT EVENTS market conditions and to extend the maturity of its debt. – In July 2004, Rallye renewed its syndicated loan facility, in the Casino issued perpetual super-subordinated notes amount of €575 million, up from €230 million previously. (“TSSDI”)
In 2004, Casino also carried out several financial operations – In January 2005, Casino made an issue of perpetual super- intended to strengthen its financial structure. subordinated notes, for an initial amount of €500 million, increased – In the second quarter of 2004, Casino launched an exchange to €600 million in February 2005. The notes bear a fixed 7.5% offer on its “B” share purchase or exchange warrants for Casino coupon for the first three years, and a variable coupon (CMS +1%) common stock (BASA B). The “C” share warrants (BSA C) from the fourth year onwards. The transaction represents an offered in exchange mature December 15, 2006 and have the opportunity for the company to diversify its sources of funds while same par value as the B warrants for Casino common stock, increasing shareholders’ equity under the new IFRS international thus enabling Casino to optimize its projected financial accounting standards. structure. The offer resulted in Rallye’s direct or indirect ownership of 1,994,646 Casino C warrants (i.e., 74.3% of the Sale of treasury stock and purchase of share purchase 2,686,230 C warrants contributed to the offer). options – In addition, at the end of December 2004, Casino issued €235.7 million in bonds indexed on the market value of Casino – In January 2005, Casino covered the employee and executives common stock through a private placement. The issue enabled stock option plans it had issued in 2003 and 2004 by purchasing the company to benefit from an expected future increase in share 2,497,321 call options on Casino common stock, and by simulta- value, through a reduction of the amount due at maturity. The neously selling 1,156,520 Casino shares. The sale of these shares transaction also involved the sale of a block of 2 million treasury for an amount of €71.9 million allowed banks to cover the position shares for €114 million, thus strengthening Casino’s financial generated by the sale of the options, and enabled Casino to structure. increase its shareholders’ equity.
Go Sport in France 3
7 Franprix in France
7 Leader Price in France
2004 Annual report - Management report ■ RALLYE 6/7 –In February, Rallye also purchased 1,538,734 Rallye share Merger of the offices of Chairman of the Board and purchase options and concomitantly sold 746,320 Rallye shares Chief Executive Officer of the Casino group. held as treasury stock, in order to cover its stock subscription and purchase option plans, and to cover the exercise of – The Casino Board of Directors met on March 21, 2005, and 490,196 bonds convertible into new shares or exchangeable for decided to merge the offices of Chairman of the Board and CEO of existing shares (“OCEANE”). the Casino group, appointing Mr. Jean-Charles NAOURI Chairman and Chief Executive Officer of the company. In response to a competitive business environment, the merger of these two offices should improve cohesion between strategy and operational management, and should shorten the decision-making process.
Casino Cafétéria in France 3 Go Sport in France 3
7 Petit Casino in France 7 Vival in France
Courir in France 3 Management report Business review
The Rallye group is present in food and specialized retail, In addition, Rallye also manages a diversified investment portfolio, through its majority interests in two main subsidiaries: Casino mainly in France and the United States, in the form of direct and Groupe Go Sport. holdings, or via specialized funds. – Casino is Rallye’s most important asset, representing over 97% of consolidated net sales, and is one of the largest food retail ■ CASINO chains, both in France, through a network of multiformat chains, and on the international scene, where it enjoys strong no.1 or no.2 In 2004, Casino’s consolidated net sales reached €23,170 million, positions in most of the countries where it does business. up by 0.8%. Its organic growth rate (1) of 3.8% reflects the – Go Sport specializes in sporting goods retail. With its three resilience of sales in France (+1.7%), despite damaged consumer chains, Go Sport, Courir and Moviesport, it is a major force in spending, and strong international activity (+12.5%). sporting goods retail in France, and the leader in sporting goods Sales and operating income for the Casino group breakdown as retail in Poland. follows:
NET SALES
(in € millions) 2004 2003 2002 % change % change 04/03 at % change 04/03 04/03 constant restated for changes in the exchange rates scope of consolidation and exchange rates
France 18,602 18,287 17,512 +1.7% +1.7% +1.7% International 4,568 4,696 5,345 –2.7% +5.9% +12.5% North America 1,610 1,844 2,203 –12.7% –4.0% Poland 773 746 873 +3.5% +6.7% Latin America 655 608 718 +7.8% +29.2% Asia 1,242 1,213 1,289 +2.4% +9.1% Indian Ocean 288 284 262 +1.2% +3.5% Group total 23,170 22,983 22,857 +0.8% +2.6% +3.8%
(1) At constant exchange rates and scope of consolidation.
7 Casino in France
Géant in France 3
2004 Annual report - Management report ■ RALLYE 8/9 OPERATING INCOME
(in € millions) 2004 2003 2002 % change % change 04/03 at 04/03 constant exchange rates
France 1,018 1,013 912 +0.6% +0.6% International 102 58 54 +76.5% +93.2% North America 50 24 18 x2.1 Poland (6) (17) (24) +65.3% Latin America 5 313 +58.0% Asia 38 33 31 +14.7% Indian Ocean 15 15 16 +2.2% Group total 1,120 1,070 966 +4.7% +5.6%
France Finally, the accelerated expansion of promising store formats (the Group added 148,600 sq. m. in selling area, as compared to France represents over 80% of Casino’s sales, and nearly 91% of 120,000 sq. m. in 2003), also contributed to strong growth in its operating income. sales. Seventy percent of the new stores were Franprix/LeaderPrice In 2004, despite weak consumer spending, and while improving outlets and small supermarkets. its price position, Casino reported sales growth of 1.7%, to Store openings in 2004 breakdown as follows: €18.6 billion. This performance demonstrates the relevance of the Group’s Géant hypermarkets 16,800 sq. m multiformat strategy, and reflects the strong organic growth Casino supermarkets 17,000 sq. m achieved by the discount chains Franprix/LeaderPrice (+5.8%), Monoprix 11,000 sq. m and the competitive price positions in all of the chains, for national Franprix/Leader Price 45,700 sq. m brands, own-brand products, as well as lowest-price products. Convenience stores and small supermarkets Own-brand and lowest-price products represent an average of (Spar, Vival, Éco Service, Petit Casino) 58,100 sq. m 40% of sales for the French chains, and are a significant factor of differentiation of Casino’s product range, generating significant growth in volumes over 2004.
7 Vival in France 7 Petit Casino in France
Spar in France 3 Éco Service in France 3 Operating income in 2004 from business in France totaled the competition (according to the Opus index, which measures €1,018 million, up by 0.6%. While carrying out an aggressive the prices of national brands at different chains, down by 1.3 points pricing strategy, Casino maintained its operating margin at 5.5%, in 2004). Cost reductions, which are facilitated by its average store through increased store cost flexibility, in particular at hypermarkets, size, have nevertheless enabled Géant to maintain its operating and through strong earnings growth at Franprix/LeaderPrice, margin at 4.1% of sales. which now accounts for 33% of consolidated operating income in – In 2004, sales from Casino supermarkets grew by 1.7%, to France. €3,184 million, while operating income fell by 6.4%, to This excellent performance underscores the relevance of the €124 million. Special offers (e.g., price reductions, launch of the Group’s multiformat positioning, focused on the formats with the lowest-price product range, and strengthening of own-brand most potential for growth and profit: discount and neighborhood products and lowest-priced products), as well as the resumption of stores now account for 70% of Casino’s operating income in a growth-driven strategy, restored growth in sales, while the chain France (compared to 63% in 2000), and their strength brings reported improved profitability in the second half of the year. about an automatic improvement of the margin mix. –Monoprix’s contribution to Casino’s operating income remains – In June 2004, Casino increased its interest in the Franprix and virtually unchanged, amounting to €106 million, with net sales at Leader Price chains, from 70% to 95% in Franprix Holding, and €1,898 million, up by 1%. In the context of difficult consumer from 70% to 75% in Leader Price Holding. Both chains once spending, the chain has once again proven the appeal of its again reported strong growth in sales (+5.8% to €4,066 million) differentiated, quality downtown store concept, reflected by 0.4% and operating income (+7.6%, to €337 million). This strong growth in sales on a same-store basis, and by the successful performance is due to the accelerated expansion with 23 Franprix launch of the customer loyalty program, which now counts store openings, and as many Leader Price store openings; to the 800,000 cardholders. continued strong sales growth on a same-store basis for Leader – The Casino group is pursuing a policy of sustained expansion Price (+4.4%), whose market share in France has reached 3.5%, for its network of small supermarkets (with 58,100 sq. m. of selling i.e., 27% of the discount market; and to sustained profitability. area opened in 2004, under the Petit Casino, Vival, Spar and Operating margins once again improved, rising to 8.3% of sales, Éco Service banners), and it now counts 4,811 stores spread up from 8.1% in 2003, and 7.5% in 2002. throughout the country. Income for 2004 was affected in the – Net sales for Géant hypermarkets reached €7,203 million, second semester by strong seasonal factors (the 2003 heat wave, up by 0.2%, and operating income was nearly stable, at and a fall in the prices of fruit and vegetables). Nevertheless, €292 million. This shows the chain’s resilience in a difficult operating income totaled €142 million, and remained environment for hypermarkets. In 2004, Géant implemented an satisfactory – nevertheless lower than in 2003 –, at 8.5% of sales aggressive pricing policy, with price cuts that were larger than (€1,671 million).
7 Monoprix in France
Petit Casino in France 3
2004 Annual report - Management report ■ RALLYE 10/11 – Lastly, the Group’s other businesses (restaurants, banking, and against 1.3% in 2003, doubling its contribution to consolidated new businesses) confirm the profitability of Casino cafeterias, with operating income, in the amount of €50 million in 2004. This 216 public cafeterias, and 26 company cafeterias. Growth was reflects the disposal of unprofitable businesses at the end of 2003, strong at Cdiscount.com, the number one website in France and also reflects steps taken in 2004 to gradually renew product for cultural goods, and Banque Casino, which had 830,000 clients lines to make them more attractive to individuals, and to at year-end 2004, and €600 million of loans outstanding. streamline logistics. Nevertheless, their contribution to sales and operating income was – Poland returned to profitability in the second half of 2004, limited (€580 million in sales, and €18 million in operating income recording operating income at €1.3 million, as against a for 2004). €7.3 million operating loss in the first half. At Géant Polska, the new policy, which involved lower prices, a wider offering, a cost International reduction program, and a successful new customer loyalty program, with over one million new cardholders in 2004, has paid In 2004, business abroad confirmed its importance as a growth off. Leader Price has continued to grow, with 29 store openings in driver, with strong organic growth in sales, and a significant 2004, bringing the number of directly-owned stores to 92, and the improvement in profitability. International businesses now account number of franchised stores to 70. for 20% of Casino’s net sales, 16% of EBITDA (13% in 2003) and – In Thailand, Big C continued to report profitable growth. Sales 9% of operating income (5% in 2003). were up by 12.1%, restated for changes in exchange rates, and International subsidiaries reported €4,568 million in consolidated operating income totaled €45.9 million, up by 11.6%. It opened net sales, down by 2.7% on the year before, but up by 5.9% after four hypermarkets in 2004, and will continue to expand at the adjusting for changes in exchange rates, and up by 12.5% after same pace in 2005, with plans to open four new hypermarkets adjusting for exchange rates and changes in the scope of and four Leader Price discount stores, designed to better meet the consolidation. Consolidated operating income rose sharply, by needs of the Thai market. 76.5%, to €102 million, and by 93.2%, when adjusted for Other countries made a smaller contribution to Casino’s income changes in exchange rates. (4.9% of sales, and 1.1% of operating income): Three countries represent three-fourths of Casino’s international – Vindémia reported good results in 2004. Sales grew by 1.2% sales: the United States, Poland, and Thailand, with increased in euros, or 3.5% when adjusted for changes in exchange rates. operating income accounting for 95% of the significant Operating margin remained satisfactory, at 5.3%. Vindémia’s improvement in the performance of international activities in 2004. business, which covers La Réunion, Mauritius, Mayotte, – In the United States, Smart & Final reported an 11% increase in Madagascar and Vietnam, enjoys a strong leadership position sales on a same-store basis, and an operating margin of 3.1%, as around the Indian Ocean.
7 Leader Price in Poland
Big C in Thailand 3 Géant in Poland 3 – Latin America (i.e., Argentina, Uruguay and Venezuela) capital increase), reported an operating loss of €20 million posted good results, thanks to the healthier economic (excluding exceptional items). Sustained by the economic recovery environment, the use of effective marketing techniques, and in Brazil and Colombia, the Group reported good results in Latin improved profitability. America, where sales on a same-store basis rallied significantly, –Taiwan experienced a difficult year, in a lackluster environment and CBD reported a surge in net income, up by 64.0%. for hypermarkets. Lastly, companies consolidated under the equity method (CBD, Casino key figures Exito and Laurus) reported mixed results in 2004. In the highly competitive Dutch market, Laurus, (in which Casino has a 45% Key figures for Casino in 2004 are compared below with figures interest, after contributing €110 million to the November 2004 for previous years:
(in € millions) 2004 2003 2002
Net sales 23,170 22,983 22,857 Operating income 1,120 1,070 966 Income from current operations 943 875 775 Net income – Total 589 562 522 – Group’s share 488 492 445 Cash flow 1,204 1,041 1,011 Current investments 757 772 956 Acquisitions 453 214 458
Trends in the price of Casino common and preferred shares were as follows:
(in €) As at 12/31/2004 As at 12/31/2003 As at 12/31/2002
Casino common shares 58.80 77.10 70.75 Casino preferred shares 53.80 63.75 51.95
As at December 31, 2004, Casino’s stock market capitalization totaled €6.3 billion. Subsequent to the exchange of 1998-2005 Casino exchangeable bonds in early January 2005, Rallye owned 49.70% of common stock, and 62.65% of Casino voting rights.
■ GROUPE GO SPORT Sales improved in the second half of the year, driven by special offers (up 3.5% and 10.2%, respectively, in the third and fourth In 2004, Groupe Go Sport opened 11 wholly-owned stores quarters). (6 Go Sport stores, of which 2 in Poland, 4 Courir stores and In France (93% of total sales), Go Sport and Courir/Moviesport 1 Moviesport outlet), and proceeded to full-scale renovation of the outlets reported an increase in sales of 1.6% and 2.0%, respectively. Go Sport stores at Parly and Givors. In addition, the 4 first Courir Sales improved over the course of the year for all three chains. franchised stores opened in Saudi Arabia. International sales grew by 28.3%, to €46.2 million, in particular, Groupe Go Sport’s 2004 consolidated net sales amounted to as a result of the integration of 11 new stores in Poland in €658.5 million, up by 3.2% (down by 1.2% on a same-store basis). December 2003.
2004 Annual report - Management report ■ RALLYE 12/13 Gross margin for the Groupe Go Sport totaled €290.7 million, i.e., Finally, negative exceptional items (provisions for the closure 44.1% of net sales, as against 46.0% in 2003. The Group reported of Courir’s headquarters and tax adjustments) weighed on net a €6.6 million operating loss, due to: the non-recurring cost of income, resulting in a €9.9 million loss. streamlining inventory at Courir (€7.5 million); the costs of special Key consolidated figures for 2004 compare as follows with offers and of strengthening organizational structures; and to the preceding years: increased cost of premises.
(in € millions) 2004 2003 2002
Net sales 658.5 638.2 634.4 Operating income (6.6) 24.8 27.1 Income from current operations (8.8) 24.4 23.2 Net income (9.9) 14.6 13.6 Cash flow 9.9 37.2 35.2 Net investments 12.0 15.9 19.8
As at December 31, 2004, Groupe Go Sport shares traded on the Eurolist Market (Euronext) at €56.95, and market capitalization totaled €218.5 million. Rallye controlled 71.72% of capital and 80.40% of voting rights.
■ FINANCIAL INVESTMENT PORTFOLIO The main events in 2004 were: – in the real estate segment, Rallye invested €13 million at the The net book value of Rallye’s portfolio of financial investments, end of December 2004 in Alexanderplatz, a joint venture with as at December 31, 2004, totaled €257 million (as against Foncière Euris and the Portuguese group Sonae Sierra, to develop €236 million a year earlier). one of the largest shopping centers in Berlin; Real estate investments account for 44% of the portfolio, in – as regards the segment of LBOs in France, the Group received particular in the United States, investments in secondary funds €8 million from Nexity in 2004, then sold off its holding for (e.g., Lexington, Auda and Paul Associates) represent 23%, and €4million net, thus totaling cash income of €23 million, on an LBO holdings, either directly (e.g., Materis, Casema and Eutelsat), initial investment of €3 million. Rallye also purchased an interest or through specialized funds (e.g.,Terra Firma, PAI and Carlyle). in Eutelsat for €10 million; The remainder of the portfolio is invested in various other holdings – as to LBOs outside France, the Group purchased an interest in (e.g., Cdiscount Lonestar, Goldman Sachs and Sofinnova). the Carlyle Europe I fund, and invested €5 million in Warner Music. Management report Financial review
■ CONSOLIDATED FINANCIAL STATEMENTS service business in the United States, beginning in the fourth quarter 2003, as well as the sale of The Athlete’s Foot at the end Earnings of December 2003. These changes reduced consolidated sales by 1.8%. Consolidated net sales for Rallye totaled €23.8 billion, up by 0.3% Restated for changes in the scope of consolidation and exchange on 2003. rates, consolidated sales grew by 3.8%. Changes in the scope of consolidation mainly included the de- Sales by business line over the last three years breakdown as consolidation of stores in Florida, and of Smart & Final’s food follows:
(in € millions) 2004 2003 2002 Sales % Sales % Sales %
Food and general retailing 22,590 94.8 22,421 94.3 22,349 94.4 Sporting goods retailing 658 2.8 778 3.3 817 3.4 Other activities 587 2.4 569 2.4 515 2.2 Total 23,835 100.0 23,768 100.0 23,681 100.0
Operating income reached €1,079 million, up by 2.2%. This income, and from the higher contribution made by Rallye’s reflects both Casino’s strong performance, with an increase in financial portfolio. operating income of 4.7%, and losses incurred by Groupe Go Income from current operations before income tax increased by Sport over the course of the year. 9.6%, reaching €857 million for the year, as against €782 million Restated for changes in exchange rates and in the scope of in 2003. consolidation, operating income increased by 0.5%. Changes in Income from current operations after income tax reached the scope of consolidation resulted in a 2.6% increase in operating €529 million, as against €446 million in 2003. income, partly offset by a 0.9% negative impact of exchange rate Income from companies accounted for by the equity method variations. totaled €38 million in 2004, as against €54 million in 2003. This Net interest expense totaled €222 million, as against €274 million drop is due to losses generated by Laurus. in 2003. This results in particular from Casino’s improved financial
CompreBem in Brazil 3
Jumbo (Vindémia) in Réunion Island 3
2004 Annual report - Management report ■ RALLYE 14/15 Lastly, net income, group’s share totaled €55 million, down by tax assets. Adjusted for these tax differences, net income, group’s 49.1% from €108 million in 2003. At Rallye level, net income was share amounted to €125 million, up by 15.7%. affected by a €70 million non-recurring exceptional expense, In 2004, the Rallye group employed 124,223 people. The average which resulted from a change in the taxation of long-term capital workforce can be brokendown by year over the last three years gains, requiring the cancellation of previously recorded deferred and by business line as follows:
2004 % 2003 % 2002 %
Food and general retailing 112,552 90.6 111,462 89.8 110,767 90.0 Sporting goods retailing 5,654 4.6 6,313 5.1 6,195 5.1 Other activities 6,017 4.8 6,368 5.1 6,032 4.9 Total 124,223 100.0 124,143 100.0 122,994 100.0
See Note 15 of the Notes to the consolidated financial statements for a breakdown of employees by function.
Financial structure – the impact of the change in method for assessing retirement commitments and similar benefits, and a change in the scope of Shareholder’s equity, group’s share, totaled €778 million, as at consolidation, in the amount of €18 million, December 31, 2004, down from €785 million as at December 31, – the cancellation of €6 million in treasury shares, 2003. This resulted from, in particular: – other transactions, amounting to €6 million. – net income, group’s share for 2004, which amounted to As at December 31, 2004, net financial debt amounted to €55 million, €6,230 million, of which €3,985 million was incurred by operational – positive translation adjustments in the amount of €29 million, due subsidiaries. This includes €62 million in exchangeable bonds to favorable exchange rates on income generated by operating which were redeemed in Casino shares in early January 2005. subsidiaries. As at December 31, 2004, the EBITDA interest coverage ratio And, conversely, from: stood at 7.5, compared to 5.8 in 2003. – the €61 million dividend payment, of which a €41 million early The ratio of net financial debt to consolidated shareholders’ equity dividend payment for 2004 was paid in October 2004, (gearing), over the last three years, is shown below:
(in € millions) 2004 2003 2002
Net financial debt 6,230 5,672 5,953 Shareholders’ equity 3,342 3,322 3,412 Ratio 186% 171% 174% ■ RALLYE PARENT COMPANY FINANCIAL In October 2004, Rallye also issued €500 million in bonds, STATEMENTS maturing in 7 years, i.e. October 13, 2011. These issues enabled Rallye to take advantage of favorable market conditions, and to Earnings extend the maturity of its debt. In addition, Rallye renewed its syndicated loan facility, which The parent company reported a €34 million operating loss, as a amounted to €575 million, as against €230 million previously. result of MFD’s €8 million current account depreciation provision. This compared to a €23 million loss as at December 31, 2003. ■ DIVIDEND POLICY As at December 31, 2004, Rallye employed 36 people. Rallye reported €51 million in net financial income, as against a At the June 8, 2005 Shareholders’ Meeting, Rallye will propose €5 million loss the year before. Over the year, it recorded: the payment of a net dividend of €1.68 per share for 2004, as – revenues and dividends received from subsidiaries and compared to €1.60 in 2003 and €1.20 in 2002. An interim contributions from: dividend of €1.20 per share was paid on October 14, 2004. – Casino: €28 million, Shareholders will be given the option for the balance of €0.48 to – other companies: €2 million, be paid in shares. – revenues and expenses generated by the Group’s cash The Rallye dividend should evolve according to the company’s management, which yielded a negative balance of €3 million, earnings, and of the dividend paid out by Casino. The company – other net financial income in the amount of €2 million, reserves the right to pay out an advance on the 2005 dividend as – €22 million in provision reversals, net of new provisions, mainly it did last year. including the reversal of €29.5 million in provisions on shares in the Parande company, which owns the Group’s financial ■ CHANGE IN METHODS investment portfolio, and €9 million in new provisions set aside to cover the redemption premium on the 2001 issue of bonds All of the provisions under Recommendation 2003-R.01 of the exchangeable for Casino common shares. French National Accounting Board (CNC), relative to rules on Net exceptional income of €77 million includes capital gains accounting for and assessing retirement commitments and similar recorded in 2004 on the sale of equity interests as part of the benefits, are applied by the Group as of January 1, 2004. This reallocation of Casino shares to other companies in the Group. modification covers solely the period over which the benefits were Net income for the year totaled €97 million, against €78 million as accumulated, and the resetting to zero of actuarial differences, at December 31, 2003. without any reappraisal of the actuarial assumptions. Henceforth, actuarial differences will no longer be booked on the income Financial structure statement for the year they were incurred, but will instead be spread over the remainder of the employees’ term of employment Shareholder’s equity amounted to €1,422 million as at December 31, with the company. 2004, as against €1,401 million as at December 31, 2003, as a result In addition, the regulation issued by the 2004-03 Accounting of, in particular: Regulatory Committee convened May 4, 2004 requires that a – net income for 2004, which amounted to €97 million. controlled company be consolidated even if no shares are actually And, conversely: owned. As at January 1, 2004, the Group thus included the – the €73 million dividend payment for 2003, of which a company Strichting Laurus Pensioenfonds (the pension fund for €44 million early dividend payment was paid for 2004, Laurus employees) within the scope of consolidation of the –the payment of a €2 million non-recurring exceptional “exit” tax, Laurus group. resulting from a change in the taxation of long-term capital gains. The impact on shareholders’ equity is documented in the Notes Over the year 2004, Rallye issued €1 billion in bonds. to the consolidated financial statements, under “Accounting In January 2004, Rallye issued €400 million in bonds, maturing principles and methods”. in 5 years, i.e. January 20, 2009, increased to €500 million in April 2004.
2004 Annual report - Management report ■ RALLYE 16/17 ■ NET INCOME APPROPRIATION Dividends paid over the last three years, as well as the related tax credits, are as follows: The balance sheet for the period ended December 31, 2004 shows income amounting to €96,873,341.41, which the Board of (in €) 2003 2002 2001 Directors proposes to allocate as follows: Net dividend 1.60 1.20 0.80 (in €) Tax credit (1) 0.80 0.60 0.40
Income for the period 96,873,341.41 (1) At a rate of 50%. Legal reserve appropriation within a limit of 10% of the capital (1.50) A comparison of income for the year ended and in the four Retained earnings (1) 50,934,420.23 previous years is shown on page 118 of this report. Earnings available for distribution 147,807,760.14 The amount of expenses which are non-deductible from a tax standpoint, in accordance with article 223-4 of the French General Dividend (62,845,186.32) Tax Code, incurred by the Company during the fiscal year ended Balance appropriated to retained earnings 84,962,573.82 December 31, 2004, totaled €5,115.82. (1) After payment of an exceptional tax of 2.5% from the long-term capital € gains’ special reserve, which totals 1,775,166. ■ STOCK MARKET INFORMATION
The net dividend allocated to each share would thus be fixed at The Rallye share is listed on the Eurolist Market by Euronext – € 1.68. Compartment A. This dividend is wholly eligible for the 50% tax rebate provided for under article 158-3 2° of the French General Tax Code. High (02/19/2004) €48.99 An interim dividend of €1.20 per share was paid on October 14, Low (10/27/2004) €32.84 2004. The balance of €0.48 per share will be paid from Price as at 12/31/2004 €38.10 June 10, 2005. Shareholders will be given the option for the balance of the 2004 Number of shares exchanged in 2004 8,528,574 dividend to be paid in shares or in cash. Trading volume in 2004 €346 million Dividends paid on treasury stock held by the company on the date the dividend was paid are booked to retained earnings. As at December 31, 2004, Rallye’s stock market capitalization It is also proposed to the Shareholders’ Meeting to transfer the sum totaled €1.4 billion. of €1,775,166, which corresponds to the 2.5% exceptional tax payment, to retained earnings from “Other reserves”.
2,000,000 Rallye share - Monthly changes in share price in 2004 and early 2005 1,993,827 €60
€50 1,600,000 1,558,661
€40 1,200,000 1,036,086 1,004,491 €30
800,000 801,433 770,151 781,072 €20 614,799 597,472 616,319 550,458 512,009 400,000 374,602 355,546 337,467 €10
0 €0 jan-04 feb-04 mar-04 apr-04 may-04 june-04 july-04 aug-04 sep-04 oct-04 nov-04 dec-04 jan-05 feb-05 mar-05
Trading volume Average Lower Higher Management report Capital and shareholder information
■ SHARE CAPITAL Under the offer, 30,815,920 category A warrants were exchanged for 24,652,736 category C warrants. As at December 31, 2004, Rallye share capital totaled The characteristics of category B and C warrants are as follows: €112,223,547, divided into 37,407,849 shares with a par value of • 14 B warrants give the right to subscribe to 1 Rallye share, €3. This compares with €112,223,532, divided into 37, 407,844 at a subscription price of: shares with a par value of €3, as at December 31, 2003. – €65 from February 19, 2002 to June 30, 2005, The change in share capital reflected the exercise of C share – as of July 1, 2005 and until November 30, 2005: 90% of the warrants and the subsequent creation of 5 new shares. average initial price recorded in the last twenty trading days prior to the 25th of the month preceding the exercise of the warrant. ■ MAIN SHAREHOLDERS The exercise price thus defined may not be greater than €65, or less than €45.50. As at December 31, 2004, Foncière Euris directly controlled • 14 C warrants grant the right to subscribe to 1 Rallye share, at 57.37% of capital, and 77.26% of voting rights. a subscription price of: Matignon Corbeil Centre, a subsidiary of Foncière Euris, held – €58 from January 1, 2004 to May 31, 2006, 2,812,007 Rallye shares, i.e. 7.52% of capital and 5.06% of voting – as of June 1, 2006 until November 30, 2006: 90% of the rights. average initial price recorded in the last twenty trading days prior As at December 31, 2004, Soparin and L’Habitation Moderne de to the 25th of the month preceding the exercise of the warrant. Boulogne, which are controlled by Rallye, held 2,404,600 shares, The exercise price thus defined may not be greater than €58, i.e. 6.43% of capital and 220,965 shares, i.e. 0.59% of capital or less than €48. respectively. As at December 31, 2004, following the exercise of 70 C warrants Rallye also held 753,440 shares in treasury stock, i.e. 2.01% of and the subsequent creation of 5 new shares, the 33,902,064 B capital. warrants and the 24,652,666 C warrants outstanding may give rise As at December 31, 2004, Foncière Euris therefore controlled to the creation of 4,182,480 new shares. 73.92% of capital and 82.32% of voting rights. To the company’s knowledge, as at December 31, 2004, no other Bonds convertible into new shares or exchangeable shareholder owned more than 5% of capital or voting rights. for existing shares (OCEANE) In January 2004, Crédit Suisse First Boston reduced its Rallye holdings to below the 1% capital threshold, then, on September 6, On January 16, 2003, Rallye issued 6,011,362 OCEANE bonds 2004, sold off all the Rallye shares it held. with a par value of €44. These bonds may be converted or On December 23, 2004, Richelieu Finance crossed the 2% capital exchanged at any time until December 19, 2007, at 1.02 Rallye threshold. shares for 1 bond. In addition, in order to cover the exercise of 490,196 bonds ■ SHARE EQUIVALENTS convertible into new shares or exchangeable for existing shares (OCEANE), in February 2005, the company acquired Share warrants 500,000 Rallye share purchase options from banking institutions. At the same time, 167,500 Rallye shares were sold, In February 2002, Rallye allocated a bonus issue of 34,507,263 at an average price of €41.18 per share. This should enable the category A share warrants, and 34,507,263 category B share banks to cover the position generated by the sale of the options. warrants to shareholders. In order to optimize its financial structure, Rallye decided to Stock options repurchase category A share warrants in October 2003, before they expired, by an exchange offer enabling holders of The Extraordinary General Meetings of February 26, 1998, June 6, A warrants the opportunity to exchange them against new Rallye 2001 and June 4, 2003 authorized the Board of Directors to C share warrants, issued for that purpose, at 4 C warrants for allocate share purchase or subscription options to employees and 5 A warrants. officers of the Group.
2004 Annual report - Management report ■ RALLYE 18/19 As at December 31, 2004, there were 1,201,500 unexercised stock options entitling the bearers to purchase or subscribe to 1,215,638 shares, according to the following stock option plans:
Dates of allocation 06/13/2000 04/06/2001 12/19/2001 04/11/2002 06/04/2003 06/09/2004
Type of plan Purchase Purchase Purchase Purchase Subscription Subscription Number of options 37,500 132,600 183,420 198,150 337,780 312,050 Number of shares 39,000 137,904 190,754 198,150 337,780 312,050 Exercise price (1) €55.13 €55.00 €48.91 €49.71 €29.51 €41.38
(1) The options are granted at the average market price, with no discounts.
As at December 31, 2004, Rallye officers held 367,910 unexercised The Board of Directors will be authorized, with the option to sub- stock options, representing rights to purchase or subscribe to delegate, to purchase the shares of the company for the following 371,072 shares. purposes: In order to cover the June 2003 and June 2004 stock option – to cover the share purchase and/or subscription option plans plans, in February 2005, the company purchased 649,830 Rallye granted to employees and company officers, in compliance with call options from banking institutions. These options were articles L. 225-179 and seq. of the French Code of Commerce, as purchased together with the sale of 425,242 Rallye shares, at an well as company savings plans and share ownership plans; average share price of €40.65. This should enable banks to cover – to issue bonus shares to employees and officers, in compliance the position generated by the sale of the options. with the provisions of articles L. 225-197-1 and seq. of the French Similarly, in order to cover the December 2001 and April 2002 Code of Commerce; stock option plans, in February 2005, the company purchased – to reassign them when rights are exercised by bearers of 388,904 Rallye call options from banking institutions. These securities issued by the Company that grant rights to company options were purchased together with the sale of 126,578 Rallye, shares through exchange, reimbursement, submission of a at an average price of €41.34. warrant, or in any other manner; – to keep them or submit them later for exchange or in payment ■ COMPANY PURCHASE OF ITS OWN SHARES as part of possible future transactions; – to ensure market activity in the context of a liquidity contract As at December 31, 2004, the company owned a total of entered into with an investment services provider, in conformity 753,440 treasury shares, unchanged since December 31, 2003. with a code of best practice, prepared by AFEI, the French Treasury stock was purchased over the previous years, as part of Association of Investment Firms, and recognized by AMF, stock option plans, and for the purpose of stock market price the French Securities Regulator; adjustments. Treasury stock represents 2.01% of capital, at a total – to write off a maximum amount not to exceed 10% of the acquisition cost of €37.7 million, and a par value of €2.3 million. company’s share capital per twenty-four-month period, and as part The Shareholders’ Meeting will also be asked to approve the of a company capital reduction exercise, as authorized by the renewal of the authorization granted to the Board of Directors, Extraordinary General Meeting of Shareholders on June 4, 2003. allowing the company to acquire its own shares, in application of The maximum unit purchase price is set at €75. articles L. 225-209 and seq. of the French Code of Commerce, The Board of Directors may, however, adjust the above-mentioned European Commission Regulation n° 2273/2003 of December 22, price, should there be any change to the shares’ par value, or any 2003, and of the general rules of procedure of AMF, the French capitalization of reserves or capital increase through the issue Securities Regulator. of bonus shares, a stock split or a reverse stock split, a capital amortization or reduction, the distribution of reserves or other assets, and any other transactions involving shareholder’s equity, to account for the impact of such transactions on share value. The use of the authorization may not result in increasing the ■ EQUITY INTERESTS number of treasury shares to over 10% of the total number of shares of share capital, i.e., currently 3,740,784 shares, for a As part of its holding activities, Rallye carried out various transactions maximum of €280 million. with its subsidiaries, including reallocations, acquisitions or disposals Such shares may be purchased, sold, transferred, or exchanged of shares of Casino, Guichard-Perrachon SA. by any means and at any time, on the market or off, over the counter, in blocks of shares or through the use of derivatives, in particular, through the use of share purchase options. The maximum amount of share capital that can be transferred in the form of blocks of shares may represent up to the entire repurchase program. The Shareholders’ Meeting decides that the company may continue to implement its repurchase program, even in the case of a share exchange or buyback offer on the shares or securities issued or initiated by the company. This share purchase authorization is granted for a period ending at the Shareholders’ Meeting convened to approve the management and the financial statements for the 2005 financial year, and no later than December 8, 2006. This share purchase program was the object of an Information Notice certified by AMF, the French Securities Regulator, and in compliance with the provisions of articles 241-1 and seq. of its general rules of procedure.
2004 Annual report - Management report ■ RALLYE 20/21 Management report Social and environmental information
(Articles 148-2 and 148-3 of Decree 2002-221 of February 20, 2002) company. Thus, in 2004, 91% of Casino employees possess permanent contracts. Employee stock ownership plans developed Rallye’s activities as a holding company, with 37 employees by the Group, together with negotiations on the reclassification of as at December 31, 2004, have no significant direct social or job positions and on-call requirements have also contributed to environmental implications. employee retention. The information presented below includes the most relevant social, With the aim of developing the competencies of its human societal, and environmental information resulting from the activities resources, Casino is investing more in vocational training. In of Rallye and its main subsidiaries. These subsidiaries, specializing particular, the Training and Development Department, which was mainly in food and sporting goods retail, manage the social, created in 2004 to coordinate training throughout the Group, societal, and environmental impact of their own activities. More prepared a framework agreement with a view to ensuring that all extensive information on the subject may be obtained by consulting employees have equal access to training (e.g., training passports, the Casino and Groupe Go Sport annual reports, as well as the validation of professional experience, contracts, and employee Casino 2004 sustainable development report. training programs). At Groupe Go Sport, in 2004, over €650,000 were allocated to train Scope of the information presented department heads and store managers, mainly in sales techniques.
For Casino, company data presented applies (except where it is Ensuring safety in the workplace explicitly stated otherwise) to all of the business establishments in which the company has a 100% interest in France: Casino, Although the figures have improved somewhat in 2004, the Guichard-Perrachon, Monoprix (held at 50% but accounted for at prevention of accidents remains a priority at Casino. A steering 100% for the first time), Distribution France Casino (and its committee, which regularly brings together the people in charge subsidiaries Serca, Acos, Casino Vacances, Nazairdis, Kamili and of safety training at each branch, was created in order to validate Codim2), Casino Cafétéria (and its company cafeteria subsidiary – compulsory safety training and to promote the exchange of best R2C), Easydis, Immobilière Groupe Casino (and its subsidiary practices. Sudéco), Tout pour la Maison (TPLM), Casino Entreprise (and its Similarly, safety in the workplace is an important issue at Groupe subsidiaries Imagica, Komogo), EMC Distribution, Comacas and Go Sport. At each store opening, special equipment is set in place Casino Services. in order to significantly reduce the risk of accidents, both on the For Groupe Go Sport, the figures below apply to all of the selling floor and in the warehouses. A risk assessment process, consolidated subsidiaries (unless otherwise specified): Groupe Go which began in 2004, will be examined and the necessary courses Sport, Go Sport France, Go Sport International, Go Sport Polska, of action will be taken. At Courir, an internal safety committee Go Sport Belgique, and Courir France. has been charged with risk assessment and with the task of The Group engages in social and environmental initiatives which pinpointing prevention measures. express its desire to build quality social relationships and to act, in its capacity as a retail trader, as a socially responsible, supportive Taking action against discrimination and towards member of society, and also to take action in favor of the environment. integrating the disabled in the workplace
■ BUILDING QUALITY SOCIAL RELATIONSHIPS In October 2004, Casino signed the “Diversity in Business Charter”, as part of the French Private Enterprise Association Rallye and its subsidiaries attach considerable importance to the (AFEP), under the auspices of Institut Montaigne. This reflects the quality of their social relationships, and are committed to quality Group’s renewed commitment against discrimination and in favor employment, safety, and non-discrimination in the workplace. of diversity in the workplace. Casino is also a partner in the Equal Latitude (which aims to build Promoting quality employment a tool for company self-assessment of diversity in the widest sense) and Equal Lucidité (1) EU initiatives. In this framework, Given its high employee turnover rate, which is typical of the fast- Casino is involved in a study which attempts to better understand moving retail trade business, Casino gives priority to permanent the ways discrimination affects a person’s access to employment employment contracts, and promotes job mobility within the and career path.
(1) Fight against Ignorance and Discrimination at Work and in the Workplace. In addition, in the framework of the “Handipacte Casino” workplace, Casino sponsored the training and participation of ten agreement, which was signed in 2003, the proportion of disabled athletes in the 2004 Paralympic Games in Athens. workers in the company remains well above the legal minimum, Groupe Go Sport also promotes access to employment for people with 8.01% in 2004. In keeping with its commitment to help the with reduced mobility, and has demonstrated its commitment to this disabled gain access to jobs and be better respected in the goal by renewing the national agreement with AGEFIPH (*) until 2006.
(*) The national association for the management of the fund for the employ- ment of disabled persons.
Quantitative data
2004 Social indicators Units Rallye holding Casino (1) Groupe Go Sport
Workforce as at December 31 number 37 67,564 5,685 – gender balance % of women 49% 63% 48% – of which full-time employees number 35 40,447 3,762 – of which part-time employees number 2 27,117 1,923 Average number of permanent employment contracts (2) number 36 62,449 4,975 Average number of fixed-term employment contracts (2) number 1 6,311 710 Average number of training hours per employee per year hours 2.31 7.08 (3) 3.45 Employee turnover % 8.8 16.9 (3)(4) 49.0 Permanent contract recruitments number 5 11,525 (4) 2,744 Fixed-term contract recruitments number 1 42,338 (4) 3,367 Economic lay-offs number 0 84 (4) 0 Net job creation (5) number 1 (1,217) 233 Average length of workweek for part-time employees hours 19 24 na Payroll (wages plus employer’s contributions) € millions 5.9 1,659 97.8 Frequency of occupational accidents (6) – 50.9 (3)(4) 60.98 Seriousness of occupational accidents (7) – 1.99 (4) 0.35 Total amount spent on charitable activities € millions 0.10 19.36 0.49 – of which spent on Works Council € millions – 14.14 0.49 – of which spent on sports and cultural donations € millions – 3.19 – – of which spent on donations to humanitarian organizations € millions 0.10 2.03 –
(1) Company figures for Casino cover all of the establishments 100%-owned by the Group in France, and 100% of Monoprix. (2) The annual average number of employees working at Casino at month-end between December 1, 2003, and November 30, 2004. Calendar year for Groupe Go Sport and Rallye. (3) Excluding Codim. (4) From December 1, 2003 to November 30, 2004. (5) New long-term employment contracts less contracts terminated. (6) Number of accidents causing at least one day’s sick leave, per million hours worked. (7) Number of days of sick leave, per year and per thousand hours worked.
2004 Annual report - Management report ■ RALLYE 22/23 ■ PROMOTING SOLIDARITY AND RESPONSIBILITY Solidarity in business IN RETAILING Every year, Rallye’s subsidiaries and their stores participate in Controlling the conditions under which products are numerous humanitarian activities (e.g., food drives, telethons, the manufactured fight against AIDS, etc.). Casino’s long-standing tradition of humanitarian action and Rallye and its subsidiaries are aware of the need to ensure that philanthropy continued in 2004. Locally, the Group continued their partners enjoy and promote quality working conditions to its annual contribution to the “Les Écoles du Soleil” association, manufacture and market their products. in support of disadvantaged children in France and abroad. In Bobigny (Seine-Saint-Denis, France), Casino also participated in Ethical and social manufacturing conditions the creation of a help center for single mothers. In 2004, the Charter of Ethics, which is a part of all reference Abroad, facing the extremely precarious conditions in the wake of contracts for brand-name product suppliers, was the object of a the tsunami, Casino’s Thai subsidiary, Big C, took action on the critical review by Amnesty International. In this framework, three day after, to help people, by giving out food and basic goods. human rights awareness-building sessions were led by Amnesty For several years now, Groupe Go Sport has been committed to International and attended by buyers from EMC Distribution (1). encouraging sports and physical activity in France, as part of the Casino also participates in the FCD (2) environment working group, fight against obesity, diabetes, and cardiovascular disease. The and continued the social audit program for suppliers of own-brand Group renewed its support for the Fleurbaix Laventie Ville Santé products in 2004, with the audit of 52 sites. research project, sponsored by the Ministry of Health. For the past As a member of the ethics commission created within the FPS (3), ten years, the two cities, which are located in the Pas-de-Calais Groupe Go Sport also aims to involve its trading partners in this department in France, have carried out research with a view to ethical approach, by asking them to sign a letter in which they promoting a healthier lifestyle for people, in terms of diet and promise to comply with the Charter of the United Nations and the physical activity. Convention on the Rights of the Child. Fostering the development of SMEs Traceability In line with European food safety regulations, several working Most of Casino’s suppliers are SMEs, which it supports through groups were created within Casino in order to ensure that these various action programs. In 2004, 27 buyers from EMC Distribution requirements are being met across the board. In 2004, Casino attended all-day training programs enabling them to become more created a website designed to inform its suppliers about the aware of the production constraints specific to SMEs. In addition, Group’s traceability requirements, in keeping with FCD standards. the IRTS (4), in cooperation with Casino and Auchan, provides help In addition, at the end of 2004, over 65% of its suppliers had to SMEs that want to do business abroad. Lastly, a committee was adopted Trace One, the electronic product safety and quality created in February 2004, involving businessmen from CGPME management tool, and over 400 specifications were included in Rhônes-Alpes (the regional section of the French federation of its database. SMEs) and operational managers from Casino, to promote a The purchasing department at Groupe Go Sport is particularly partnership relationship and a spirit of cooperation between SMEs aware of the need to ensure the quality and safety of its products, and the Group, outside of commercial negotiations. and to ensure that tests are validated, and that standards are complied with (e.g., subcontractors must confirm in writing that ■ TAKING ACTION IN FAVOR OF THE ENVIRONMENT they do not use azoic colorants in the manufacture of textile components). As responsible retailers, Rallye and its subsidiaries have progressively deployed methods to help better address environmental problems on a day-to-day basis. In particular, this year, Casino implemented the environment policy it set up in 2003.
(1) Casino’s central purchasing department. (2) The federation of trade and retail enterprises. (3) The professional federation of sports enterprises. (4) International Retail and Trade Services. Optimizing waste management reusable bags that are sold to the customer. An average of 15% fewer bags were used in one year. The program has progressively Given that a supermarket generates one metric ton of waste per reached all of its stores, with the aid of awareness campaigns for week, and that a hypermarket generates six tons per week, both customers and checkout clerks. minimizing the production of waste in stores is key to attaining its environmental and economic objectives. Casino encourages its Reducing energy consumption and greenhouse stores to sort waste at the source, in order to minimize the amount gas emissions of unsorted garbage, which is becoming increasingly expensive to dispose of. To this end, the Group has prepared centralized waste Casino consumes energy essentially in the form of electricity used management agreements with service providers who are capable to light stores and to refrigerate food. In 2004, Casino group of collecting and properly disposing of the waste. Since 2004, focused on its “Greenlight” program, to renovate and improve the hypermarket and supermarket branches have sorted out store lighting, and on the monthly monitoring of its electricity fermentable waste on several pilot sites, to test feasibility on a consumption. larger scale. At the same time, Casino continued its action to reduce Groupe Go Sport has been outsourcing the selective sorting of greenhouse gas emissions caused by the transportation of goods. boxes, which make up most of what it throws away. In addition, a This mainly means making more efficient use of trucks, and using traceability procedure for the disposal of fluorescent light bulbs vehicles which pollute less first. has been set up. Through the progressive modernization of its stores, Groupe Go Reducing the use of plastic bags Sport, has introduced new technologies, by equipping its new stores with air conditioning systems which use a substitute Casino is continuing its program to stop giving out free plastic bags coolant, known as R407C, which minimizes damage to the at the supermarket checkout counters, replacing them with Earth’s ozone layer.
Quantitative data
Most figures shown below concern Casino and Monoprix’s businesses. Additional information is included in the management reports for Groupe Go Sport and Casino, as well as in Casino’s sustainable development report.
Environmental data of importance to Casino Units 2004
Total amount of waste sorted for recycling (1) tons 41,817 Total consumption of electricity MWh 1,405,737 Total consumption of natural gas MWh 165,212 Consumption of electricity in stores relative to selling area KWh/m2 642 Distance traveled for the transport of goods (from warehouse to store) ’000’s km 140,845
(2) CO2 emissions from transport of goods (from warehouse to store) Eq. Tons CO2 177,490
(2) Indirect CO2 emissions from electricity consumption Eq. Tons CO2 98,402
(3) Direct CO2 emissions from gas consumption Eq. Tons CO2 33,340
(4) 6 Total CO2 emissions relative to sales Eq. Tons CO2 / 10 euros in total sales 15.8
(1) Covers used crates, and energy consumables collected under national agreements. (2) Based on distance traveled, according to the method laid down in the Greenhouse Gas Protocol. (3) Based on amounts consumed, according to the method laid down in the Greenhouse Gas Protocol. (4) Based on Casino sales in France, including 100% Monoprix.
2004 Annual report - Management report ■ RALLYE 24/25 Management report Corporate governance
■ STRUCTURE AND OPERATION OF THE BOARD The remaining members of Rallye’s Board of Directors are officers OF DIRECTORS or executives from the Rallye parent company or its parent companies. At the end of the Shareholders’ Meeting of June 8, 2005, the The Board does not include a Director elected by employees. Board of Directors will comprise the following twelve directors, all of whose terms will begin or be renewed at the said Shareholders’ ■ CENSOR Meeting. The office of censor was created in 2002 to encourage the – Jean-Charles NAOURI, Chief Executive Officer, participation of qualified individuals in the Board of Directors. – André CRESTEY, Vice-Chairman, Censors are appointed by the Ordinary Shareholders’ Meeting or, – Didier CARLIER, representing Foncière Euris, between meetings, by the Board of Directors, subject to ratification – Jean CHODRON de COURCEL, by the next Shareholders’ Meeting. – Jacques DERMAGNE, Censors are appointed for a period of one year, and attend Board – Jacques DUMAS, meetings; in this capacity, they express their observations and – Pierre FÉRAUD, opinions, and take part in the proceedings, in a consultative role. – Jean-Marie GRISARD, representing Finatis, The number of censors must not exceed five. The age limit for – Jean LÉVY, censors is 80 years of age. – Christian PAILLOT, Julien CHARLIER has held the position of censor since June 4, – Catherine SOUBIE, representing Groupe Euris, 2003. – Gilbert TORELLI, A censor must step down from office at the end of the Ordinary – Julien CHARLIER, Censor. Shareholders’ Meeting convened for the year during which he reaches 80 years of age. Groupe Euris, the Group’s parent company, will be proposed to be nominated as Director at the Shareholders’ Meeting. ■ OFFICES HELD BY THE DIRECTORS Directors whose term of office is one year are appointed by the Shareholder’s Meeting and may be reappointed indefinitely. All Directors who held office in 2004 were appointed or reappointed However, all individual Director and permanent representatives of a at the Ordinary Shareholders’ Meeting of June 9, 2004, for a period legal entity, must step down from office at the end of the Ordinary of one year. Shareholders’ Meeting convened to examine the financial statements for the year during which they reach 75 years of age. Jean-Charles NAOURI The rules and regulations of the Board of Directors are as established by law, company by-laws and the Board’s internal rules Chairman and Chief Executive Officer of procedure. They are described in detail below, in the “Chairman’s – First appointed to the Board of Directors: October 25, 1993. Report”. – First appointed as Chairman and Chief Executive officer: April 2, As part of its mission, the Appointments and Remunerations 1998. Committee examined the membership of the Board of Directors, – Date of birth: March 8, 1949. Age: 56. and in particular the independence of the Directors in light of the recommendations in the “Bouton Report” of September 2002. The I – Biography committee submitted its conclusions to the Board of Directors at Alumnus of the École normale supérieure (majoring in science), its Meeting on April 21, 2005. Harvard University, and ENA, the French National School of Public The members of the Board of Directors were selected on the basis Administration, Jean-Charles NAOURI, Inspecteur des Finances, of their skills, experience, and their ability to complement one began his career with the Department of the Treasury at the another. French Ministry of Finance. He was appointed Principal Private The Board of Directors deemed that five Directors are independent Secretary to the Minister of Social Affaires and National Solidarity under the meaning of the “Bouton Report”: Jean CHODRON de in 1982, and later to the Minister of the Economy, Finance, and COURCEL, Jacques DERMAGNE, Jean LÉVY, Christian PAILLOT the Budget in 1984. and Gilbert TORELLI. In 1987, he founded Euris. I – Principal office III – Offices held during 2004 and continuing as at March 31, 2005 Chairman and Chief Executive Officer of Casino, Guichard- Within the Euris group: Perrachon SA. Director of Foncière Euris SA, Miramont Finance et Distribution SA, Groupe Go Sport SA, and Rallye SA, III – Offices held during 2004, and continuing as Permanent representative of Omnium de Commerce et de at March 31, 2005 Participations SAS to the Board of Directors of Casino, Guichard- Within the Euris group: Perrachon SA. Chairman of the Board of Euris SA and Finatis SA, Outside the Euris group: President of Groupe Euris SAS. President of Perifem. Outside the Euris group: Managing Partner of Rothschild & Cie Banque, IV – Office ending in 2004 Director of HSBC-CCF SCA and Continuation Investment NV, Director of IFLS. Member of the Supervisory Board of Groupe Marc de Lacharrière Number of Rallye shares owned: 36,113. SCA, Number of B share warrants owned: 13,420. Censor of Caisse Nationale des Caisses d’Épargne et de Prévoyance Number of C share warrants owned: 16,583. SA, and of Fimalac SA, Manager of SCI Penthièvre Seine and SCI Penthièvre Neuilly. Jean CHODRON de COURCEL
IV – Offices held in organizations and associations Director President of the association “Promotion des Talents”, – First appointed to the Board of Directors: June 9, 2004. Vice-President of Fondation Euris, – Date of birth: May 14, 1955. Age: 50. President of the Institut d’Expertise et de Prospective de l’École normale supérieure, I – Biography Member of the Consultative Committee of Banque de France. Jean CHODRON de COURCEL is a graduate of HEC School of Number of Rallye shares owned: 310. Management and an alumnus of ENA, the French National School of Public Administration. After having held various positions within André CRESTEY the Administration and ministerial staff, in 1990, Jean CHODRON de COURCEL joined senior management at the Schneider group, Vice-Chairman and Director then, in 1997, at Crédit Agricole Indosuez. From 1996 to 1997, – First appointed to the Board of Directors: August 14, 1992. he was Deputy Private Secretary to Prime Minister Alain – First appointed as Vice-Chairman of the Board of Directors: JUPPÉ. Currently, he is Deputy Managing Director of Penauille April 2, 1998. Polyservices SA. – Date of birth: February 22, 1939. Age: 66. II – Principal office I – Biography Deputy Managing Director at Penauille Polyservices SA. From 1977 to 1992, André CRESTEY was Chief Executive Officer of Euromarché. In 1992, he entered the Rallye group, where he III – Offices held during 2004 and continuing as at March 31, 2005 served first as Chairman of the Management Board, then as Director at Penauille Polyservices SA, Globeground North America llc Chairman and Chief Executive Officer (1993) and as Vice- (GGNA llc) and Servisair PLC. Chairman and Chief Executive Officer from 1998 to 2001. Since Number of Rallye shares owned: 300. 2001, he has been Vice-Chairman of the Board of Directors. Jacques DERMAGNE II – Principal office Vice-Chairman of the Board of Directors, Rallye SA. Director – First appointed to the Board of Directors: June 5, 2002. – Date of birth: November 28, 1937. Age: 67.
2004 Annual report - Management report ■ RALLYE 26/27 I – Biography Permanent Representative of Groupe Euris SAS to the Board of In 1968, after studying law and literature, Jacques DERMAGNE Directors of Foncière Euris SA and Casino, Guichard-Perrachon SA, entered the Conseil National du Commerce, where he became Director of Fondation Euris. President in 1981. He was Executive Vice-President of the CNPF Outside the Euris group: from 1980 to 1999, then was elected President of France’s Manager of SCI Cognacq-Parmentier. Economic and Social Council, and re-elected in 2004. In June 2003, he was appointed President of the International Association IV – Offices ending in 2004 of Economic and Social Councils and Similar Institutions. Permanent Representative of Parcade SAS to the Board of Directors of Casino, Guichard-Perrachon SA. II – Principal office held Number of Rallye shares owned: 7,252. President of the Conseil Économique et Social. Number of B share warrants owned: 7,220. Number of C share warrants owned: 5,776. III – Offices held during 2004 and continuing as at March 31, 2005 Director of Unibail SA, Cetelem SA and Devanlay SA, Pierre FÉRAUD Member of the Supervisory Board of DMC SA, Vice-Chairman and Member of the Supervisory Board of France Director Convention SA, – First appointed to the Board of Directors: June 16, 1995. Censor of France Convention SA. – Date of birth: September 28, 1940. Age: 64. Number of Rallye shares owned: 500. I – Biography Jacques DUMAS A graduate of HEC School of Management and of the Institut d’études politiques de Paris, Pierre FÉRAUD held various positions Director related to financing of real estate promotion, as well as to the active – First appointed to the Board of Directors: July 19, 1990. management of real estate assets, mainly within the companies – Date of birth: May 15, 1952. Age: 53. UIC-SOFAL and GMF. He joined Euris in 1991 and was appointed Chairman of Foncière Euris in 1992. I – Biography Jacques DUMAS, who has a Master’s Degree in Law, and is an II – Principal office alumnus of the Institut d’études politiques in Lyon, began his Chairman and Chief Executive Officer of Foncière Euris SA. career as a lawyer, then became Administrative Director at the Compagnie Française de l’Afrique Occidentale – CFAO, where he III – Offices held during 2004 and continuing as at March 31, 2005 remained from 1978 to 1986. In 1987, he was appointed Deputy Within the Euris group: Company Secretary at the Rallye group, then Director of Legal Manager of Parande SAS, Affairs at Groupe Euris (1994). Chairman of the Board of Directors of Carpinienne de Participations SA, and Marigny Belfort SA, II – Principal office President of Mermoz Kléber SAS, Deputy Managing Director at Groupe Euris SAS. Permanent representative of Groupe Euris SAS to the Board of Directors of Finatis SA, III – Offices held during 2004 and continuing as at March 31, 2005 Permanent representative of Foncière Euris SA to the Board of Within the Euris group: Directors of Casino, Guichard-Perrachon SA, Chairman and Chief Executive Officer of La Bruyère SA, Permanent representative of Matignon Diderot SAS to the Board of President of Alpétrol SAS and Kerrous SAS, Directors of Euris SA, Director at Carpinienne de Participations SA, and Groupe Representative of Foncière Euris SA, President of Marigny Go Sport SA, Concorde SAS, Marigny Élysées SAS, Marigny Expansion SAS, Marigny Foncière SAS, Marigny Participations SAS, Marigny Valbréon SAS, Marigny Tours SAS, Matignon Abbeville SAS, Jean LÉVY Matignon Bail SAS, Matignon Corbeil Centre SAS, and Les Moulins à Vent SAS, Director Manager of Centrum NS SARL, SNC Marigny Garonne, – First appointed to the Board of Directors: June 23, 1994. Alexanderplatz Voltairestrasse GmbH (previously Granat 62 VV – Date of birth: November 9, 1932. Age: 72. GmbH), SCI Le Parc Agen Boe, SCI Le Parc Alfred Daney, SCI Le Parc La Roche, SCI Les Deux Lions, SCI Les Halles des Bords de I – Biography Loire, SCI Palais des Marchands, and SCI Ruban Bleu Saint- A graduate of the Institut d’études politiques de Paris Nazaire, (economics major), and of Yale (international economics major), Representative of Foncière Euris SA, Manager of SCI Hôtel d’Arc Jean LÉVY spent most of his career at L’Oréal, from 1960 to 1800, SCI Sofaret, SCI Les Herbiers, SCI Pont de Grenelle, and 1987, where he was Vice-President for consumer products. Later SNC Alta Marigny Carré de Soie, he joined Sanofi, where he was a member of the management Representative of Marigny Élysées SAS, co-Manager of SCCV des committee from 1987 to 1992. Since 1991, as an independent Jardins de Seine 1, SCCV des Jardins de Seine 2, and SNC Centre counselor and company director, he has held the offices of Commercial du Grand Argenteuil, Chairman of AFCOHT (the French Association of Duty Free Representative of Marigny-Foncière SAS, Co-Manager of SNC Commerce) and of the IFLS (the French Institute of Self Service). CCPC (Centre Commercial Porte de Châtillon), and SCI Palais des He is an honorary member of Conseillers du commerce extérieur Marchands, de la France. Representative of Marigny-Valbréon SAS, Co-Manager of Société d’Aménagement Valbréon (SNC), II – Principal office Representative of Matignon Abbeville SAS, Manager of Centrum K Company Director. (SARL), and Centrum J (SARL). Outside the Euris group: III – Offices held during 2004 and continuing as at March 31, 2005 Permanent representative of Foncière Euris SA to the Board of Director of Interparfums Inc., Interparfums France, Price-Minister Directors of Apsys International SA, SA and Axcess SA, Permanent representative of Foncière Euris SA to the Board of President of Mont-Blanc SAS and Vivadis SAS. Directors of Marignan Consultants SA. IV – Offices ending in 2004 IV – Offices ending in 2004 Director of Zannier SA. Within the Euris group: Number of Rallye shares owned: 456. President of Matignon Marne La Vallée SAS, Representative of Foncière Euris SA, President of Centre Christian PAILLOT Commercial de l’Ile-Saint-Denis SAS, Marigny Percier SAS, Matignon Meylan SAS, and Matignon Moselle SAS, Director Representative of Foncière Euris SA, Manager of SCI Ile Saint- – First appointed to the Board of Directors: April 15, 2004. Denis Développement, and SCI des Boucles de Seine, – Date of birth: September 9, 1947. Age: 57. Representative of SNC Foncière Cézanne Mermoz, Manager of SCI Alta Saint-Georges, I – Biography Representative of SNC Marigny Garonne, Co-Manager of SNC Christian PAILLOT has spent most of his career in manufacturing Foncière Cézanne Mermoz, SNC Altaréa Les Tanneurs, SNC Alta and distribution of photographic, video, and hi-fi equipment. He Matignon, SNC Bordeaux Sainte-Eulalie. built and developed the French businesses of Akai, Konica and Number of Rallye shares owned: 1,337. Samsung. He is now advisor to the Chairman of Konica Europe. Number of B share warrants owned: 1,337.
2004 Annual report - Management report ■ RALLYE 28/29 II – Offices held during 2004 and continuing as at March 31, 2005 II – Principal office Advisor to the Chairman of Konica Europe, Company Secretary of Groupe Euris. Director of FG Marine SA, Manager of Écurie du Haras de Plaisance SARL, SCI Parim, and III – Offices held during 2004 and continuing as at March 31, 2005 CP Immobilier SCI. Within the Euris group: Number of Rallye shares owned: 300. President of Matignon Diderot SAS, Matignon Rousseau SAS, Matimmob 1 SAS, Eurdev SAS, Gilbert TORELLI Chief Executive Officer of Euris SA, and Finatis SA, Director of Finatis SA, Carpinienne de Participations SA, Foncière Director Euris SA, Euris Limited, Euris North America Corporation – – First appointed to the Board of Directors: June 13, 2000. (ENAC), Euris Real Estate Corporation – (EREC), Euristates, Green – Date of birth: August 21, 1936. Age: 68. Street Investments International Ltd, Park Street Investments International Ltd, I – Biography Permanent representative of Euris SA to the Board of Directors of Gilbert TORELLI made his career at Moulinex, in charge of sales, Casino, Guichard-Perrachon SA, marketing, and distribution in France and abroad. He was Chief Permanent representative of Groupe Euris SAS to the Board of Executive Officer from 1990 to 1993, and Chairman of the Directors of Euris SA, Supervisory Board from 1994 to 1998. Permanent representative of Foncière Euris SA to the Board of Directors of Marigny Belfort SA, II – Offices ending in 2004. Director and Treasurer of Fondation Euris. Director of Le Portefeuille Diversifié SA and Victoire SA, Outside the Euris group: Chairman of the Board of Directors of Finamex SA. Manager of Frégatinvest. Number of Rallye shares owned: 250. FONCIÈRE EURIS SA FINATIS SA Director Director – First appointed to the Board of Directors: October 25, 1993. – First appointed to the Board of Directors: June 2, 1998. I – Offices held during 2004 and continuing as at March 31, 2005 I – Offices held during 2004 and continuing as at March 31, 2005 Within the Euris group: Director of Euris SA. President of Les Moulins à Vent SAS, Matignon Abbeville SAS, Marigny Concorde SAS, Matignon Corbeil Centre SAS, Marigny II – Office held since January 1, 2005 Tours SAS, Marigny-Elysées SAS, Marigny Expansion SAS, Marigny Director of Casino, Guichard-Perrachon SA. Participations SAS, Marigny Valbréon SAS, Marigny Foncière SAS, Number of Rallye shares owned: 250. and Matignon Bail SAS, Permanent representative: Director of Casino, Guichard-Perrachon SA, and Marigny Belfort SA, Jean-Marie GRISARD Manager of SCI Hôtel d’Arc 1800, SCI Sofaret, SCI Les Herbiers, Date of birth: May 1, 1943. Age: 62. and SCI Pont de Grenelle, Co-Manager of SNC Alta Marigny Carré de Soie. I – Biography Outside the Euris group: A graduate of HEC School of Management, Jean-Marie GRISARD Director of Apsys International SA and Marignan Consultants SA. began his career with the mining group Pernarroya-Le-Nickel- Imétal, where he held various positions in Paris and London. He was II – Offices ending in 2004 appointed Finance Director of Francarep in 1982, and joined Euris Within the Euris group: in 1988, as Company Secretary. President of Centre Commercial de l’Ile-Saint-Denis SAS, Matignon Meylan SAS, Matignon Moselle SAS, and Marigny Percier SAS. Number of Rallye shares owned: 20,822,370. Permanent representative: GROUPE EURIS SAS Didier CARLIER Date of birth: January 5, 1952. Age: 53. Groupe Euris will be nominated at the Ordinary Shareholders’ Meeting on June 8, 2005. I – Biography To be proposed as permanent representative: Didier CARLIER is a graduate of the École supérieure de commerce Catherine SOUBIE de Reims and is a certified public accountant. He began his career Date of birth: October 20, 1965. Age: 39. in 1975 with Arthur Andersen’s audit department, and left the company in 1983 as Manager. He subsequently served as I – Biography Company Secretary at Équipements Mécaniques Spécialisés and A graduate of the École supérieure de commerce de Paris, as Chief Financial Officer at Hippopotamus. He joined the Rallye Catherine SOUBIE began her career in 1989 with Lazard in group in May 1994, as Chief Financial Officer, and was appointed London, then in Paris, where she was, among other positions, Deputy Managing Director in January 2002. Manager in charge of Financial Affairs. She then joined Morgan Stanley in Paris, where she held the office of Managing Director. II – Principal office In 2005, she became Deputy Managing Director of Rallye. Deputy Managing Director of Rallye SA. II – Principal office III – Offices held during 2004 and continuing as at March 31, 2005 Deputy Managing Director of Rallye SA. Within the Euris group: Chairman and Chief Executive Officer of Miramont Finance and ■ CENSOR Distribution SA, President of Cobivia SAS, Les Magasins Jean SAS, L’Habitation Julien CHARLIER Moderne de Boulogne SAS, Omnium de Commerce et de Participations SAS, Parande SAS, Parande Développement SAS, Date of birth: November 10, 1927. Age: 77 ans. Parcade SAS, Genty Immobilier et Participations SAS, Finaviv SAS, Syjiga SAS, and Matignon Sablons SAS, I – Biography Chairman and Chief Executive Officer of MFD Inc., A graduate of the University of Chicago’s Graduate School of Managing Director of Club Sport Diffusion SA, Limpart Business (MBA), Julien CHARLIER served, from 1954 to 1969, Investments BV, as General Manager of Général Medical in Belgium, then from Representative of Parande SAS, President of Matignon Neuilly SAS 1969 to 1975 as Vice-President and General Manager of the and Sybellia SAS, Medical Systems Division at General Electric. In 1975, he entered Permanent representative of Omnium de Commerce et de the Cokerill group as Chairman and Chief Executive Officer, and Participations SAS to the Board of Directors of Groupe Go Sport SA, from 1982 to 1994 served as Chairman and Chief Executive Permanent representative of Groupe Go Sport SA to the Board of Officer of Dollfus Mieg et Cie. He has held Director offices at Euris, Directors of Go Sport Espagne SA, Saint Laurent Couture et Parfums, and Société des Bains de Mer Manager of SCI de Kergorju, SCI des Sables, and SCI des in Monaco. Perrières. II – Offices held during 2004, and continuing as at March 31, 2005 IV – Offices ending in 2004 Censor of Euris SA, Within the Rallye group: Manager of Sofin and Soges. President of Mermoz Kléber SAS, Manager of SCI Les Iles Cordées and SCI de Periaz.
V – New office held since January 1, 2005 Director of Clearfringe Ltd.
2004 Annual report - Management report ■ RALLYE 30/31 ■ EXECUTIVE MANAGEMENT Guichard-Perrachon for 2003, in the amount of €52,557. No compensation or Directors’ fees were paid to Jean-Charles The Board of Directors, at its meeting on June 9, 2004, confirmed NAOURI in 2004 by Foncière Euris. the reappointment of Jean-Charles NAOURI as Chairman and Chief Executive Officer. Compensation received by the Deputy Managing As Chief Executive Officer, he has wide powers enabling him to Director take action under any circumstances, on behalf of the company. He exercises his powers within the framework of the Company’s The total gross amount of compensation and benefits of any kind corporate charter, subject to the powers expressly granted by law paid out to Didier CARLIER in 2004 comes to €300,000, of which to the Shareholders’ Meetings and to the Board of Directors. He €75,000 is a variable amount calculated for the year 2003. represents the company in its relations with third parties. The total amount of compensation paid out to Didier CARLIER in However, in accordance with the rules of procedure, any decision 2003, totaled €267,628. likely to affect the strategy of the Group must have prior Directors’ fees received by Didier CARLIER in 2004 from Rallye authorization by the Board of Directors. amounted to €10,000, and Directors’ fees received by him from The Board of Directors, following the Ordinary Shareholders’ Meeting Groupe Go Sport for the year 2003 totaled €13,000. In 2004, of June 8, 2005, will be asked to accept the reappointment of Foncière Euris paid no compensation or Directors’ fees to Didier Jean-Charles NAOURI as Chairman and Chief Executive Officer. CARLIER. Didier CARLIER has been Deputy Managing Director since January 2002 and Catherine SOUBIE also, since March 2005. Compensation received by other corporate officers
■ COMPENSATION RECEIVED BY EXECUTIVES Directors’ fees were allocated by the Shareholders’ Meeting to the AND OTHER CORPORATE OFFICERS members of the Board of Directors as described below: – Directors’ fees include a flat fee of €4,000, and a variable Compensation paid to executives and other corporate officials by payment of €16,000 based on attendance at Board meetings. Rallye, the companies it controls, and by Foncière Euris, the Directors’ fees allocated to Directors, executives and other parent company that directly controls Rallye, are as follows: corporate officers of the Group are reduced by 50%. The variable amount not paid to absent Board members is not reallocated to Compensation received by executives other members. The Vice-Chairman receives an additional amount of €20,000. The Board of Directors determines the mode of payment and – Committee members receive an additional flat fee of €10,000, amount of fixed and variable compensation paid to company increased by the same amount for Committee chairs. executives on the basis of the recommendations of the In June 2004, the total amount of Directors’ fees and compensation Appointments and Compensation Committee. The Board of paid out for the previous year to Directors, Censors, and to Directors also sets the number and exercise price for any stock members of the specialized committees totaled €242,000, options granted to executives. as against €270,000 for the previous year.
Compensation received by the Chairman and Chief Executive Officer
In 2004, Jean-Charles NAOURI received no compensation or benefits other than the Director’s fees received in 2004 from Rallye, in the amount of €34,250, and those paid by Casino, Director’s fees and compensation paid Director’s fees paid out in 2004 (in €) out in 2003 (in €)
Name by Rallye by companies by Rallye controlled by Rallye or by Rallye’s holding company
Director Committees Director Committees
Julien CHARLIER 8,000 – – 11,528 10,000 Jean CHODRON de COURCEL 3,000 – – – – Jacques DERMAGNE 14,000 11,667 – 21,565 – Jean LÉVY 18,000 10,000 – 16,546 10,000 Gilbert TORELLI 16,000 10,000 – 21,565 10,000 André CRESTEY 30,000 20,000 115,231 (1) 30,579 20,000 Jacques DUMAS 10,000 1,667 30,231 (2) 11,518 – Pierre FÉRAUD 10,000 – 400,231 (3) 11,518 – Jean-Marie GRISARD 10,000 – 22,231 (4) 11,518 – François de MONTAUDOUIN (5) 6,417 6,667 33,260 (6) 10,579 10,000 Christian PAILLOT 10,667 1,667 – – –
(1) Including €9,731 by Foncière Euris and €105,500 by Casino, Guichard-Perrachon, Groupe Go Sport and Miramont Finance et Distribution, all companies controlled by Rallye. (2) Including €9,731 by Foncière Euris and €20,500 by Casino, Guichard-Perrachon and Groupe Go Sport, all companies controlled by Rallye. (3) Including €55,466 by Foncière Euris and €344,765 by Casino, Guichard-Perrachon and Parande, all companies controlled by Rallye. (4) Including €9,731 by Foncière Euris and €12,500 by Casino, Guichard-Perrachon, controlled by Rallye. (5) François de MONTAUDOUIN, who was Deputy Managing Director until January 23, 2004, received compensation totaling €535,413, including a severance bonus of €400,111. (6) Including €9,731 by Foncière Euris and €23,529 by Casino, Guichard-Perrachon and Groupe Go Sport, all companies controlled by Rallye.
■ STOCK OPTIONS GRANTED TO CORPORATE OFFICERS AND OPTIONS EXERCISED
Stock subscription options granted by the company and the companies it controls to corporate officers in 2004 are as follows:
Number Exercise price Date Maturity of options in € granted date
Stock subscription options granted for the period to corporate officers by Rallye Didier CARLIER 25,000 41.38 06/09/2004 12/09/2009 Jacques DUMAS 25,000 41.38 06/09/2004 12/09/2009 Jean-Marie GRISARD 25,000 41.38 06/09/2004 12/09/2009 Pierre FÉRAUD 17,850 41.38 06/09/2004 12/09/2009 Stock subscription options granted for the period to corporate officers by Groupe Go Sport, controlled company Didier CARLIER 3,000 64.18 05/25/2004 11/25/2009 Jacques DUMAS 3,000 64.18 05/25/2004 11/25/2009 Stock options exercised by corporate officers in 2004 are as follows: Stock options exercised during the period Nil
2004 Annual report - Management report ■ RALLYE 32/33 Regulated agreements – Other executive interests Deputy Statutory Auditors
The special report by the Statutory Auditors on the agreements Patrick-Hubert PETIT entered into by the company and one of the Directors or a Deputy for KPMG. shareholder with over 10% of voting rights, or, in the case of Date of first term: June 6, 2001. a shareholding corporation, the company controlling it, and which Date of expiration of last term: at the close of the Annual do not have the characteristics of current transactions carried out Shareholders’ Meeting in 2007. under normal conditions, is available at the head office of the Company. Philippe PEUCH-LESTRADE No loan or guarantee is granted to or taken out on behalf of Deputy for BARBIER FRINAULT & Autres the corporate officers by the company or by any company in Date of expiration of last term: at the close of the Annual Shareholders’ the Group. Meeting in 2005. No assets necessary for company operations are owned either by These firms also serve as Statutory Auditors for some of Rallye’s any corporate officer, or by his or her family. main subsidiaries.
■ STATUTORY AUDITORS Renewed term for the Statutory Auditor and the Deputy Statutory Auditor’s mandate In accordance with legal provisions, Rallye has two Statutory Auditors, and two Deputy Statutory Auditors: The mandate given to Barbier Frinault & Autres (member of the Ernst & Young network) for the office of Statutory Auditor and to his Statutory Auditors deputy Philippe PEUCH-LESTRADE, expiring at the Shareholders’ General Meeting scheduled for June 8, 2005, the Audit KPMG Committee, as part of the mission conferred to it by the Board of Signatory partner: Catherine CHASSAING (since 2004). Directors, examined the terms and conditions for their renewal. Date of first term: June 29, 1993. On the basis of the presentation made by executive management, Date of expiration of last term: at the close of the Annual and after consulting with an independent expert, the Audit Shareholders’ Meeting in 2007. Committee considered the advantages of renewing the mandate given to Barbier Frinault & Autres and to his deputy Philippe BARBIER FRINAULT & AUTRES PEUCH-LESTRADE in terms of maintaining the audit chain within Signatory partner: Henri-Pierre NAVAS (since 2004). the Group, since Ernst & Young is in fact Statutory Auditor Date of first term: June 1, 1999. for Rallye and of its two main subsidiaries, Casino and Groupe Date of expiration of last term: at the close of the Annual Go Sport. Shareholders’ Meeting in 2005. After listening to Barbier Frinault & Autres’ presentation of their work program, working methods, and the structure of the dedicated team, the Audit Committee handed down a favorable opinion. At its meeting on December 16, 2004, the Board of Directors decided to submit this opinion to the approval of the Annual Shareholders’ Meeting. ■ FEES PAID BY THE GROUP IN 2004 AND 2003 TO STATUTORY AUDITORS AND MEMBERS OF THEIR NETWORKS
(in €) 2004 2003
Ernst & Young KPMG Ernst & Young KPMG
Amount % Amount % Amount % Amount %
Audit – Statutory audit, certification, inspection of individual and consolidated accounts 3,165,188 449,854 2,870,410 419,518 – Additional assignments 327,123 83,133 856,323 83,720 Subtotal 3,492,311 94 532,986 92 3,726,733 87 503,238 71 Other services – Legal, tax, social 105,666 391,632 – Information technology 46,800 160,432 204,116 – Other 107,678 3,060 Subtotal 213,344 6 46,800 8 555,124 13 204,116 29 Total 3,705,655 100 579,786 100 4,281,857 100 707,354 100
2004 Annual report - Management report ■ RALLYE 34/35 Report from the Chairman of the Board of Directors
In compliance with article L. 225-37 § 6 of the French Code of In accordance with article L. 621-18-2 of the Monetary and Commerce, the purpose of this report is to inform the shareholders Financial Code and article 222-14 of the General Rules of of the conditions in which the Board of Directors’ work is prepared Procedure of the AMF, the requirement that Directors issue a and organized, and to explain the potential limits to the powers of statement every six months of all personal transactions involving the Chief Executive Officer and the internal control procedures their company’s shares was modified. The Company is now defined by the company. required to provide information by name to the AMF on every This report is attached to the management report prepared by the transaction made by its Directors, and to make the information Board of Directors describing the activities of the company and its public through a press release. subsidiaries during the year ending December 31, 2004. It is The rules of procedure set out also the principle of formal and made available to the shareholders before the Annual General regular assessments of the Board of Directors’ operations. They Meeting. also define the modalities and conditions in which the meetings and proceedings take place. The rules notably allow Directors to ■ PREPARATION AND ORGANIZATION attend Board meetings by videoconference. OF THE BOARD OF DIRECTORS’ WORK The office of Censor was created in 2002 to encourage qualified individuals to become members of the Board of Directors. The conditions in which the work of the Board of Directors is The Censor attends Board meetings, expresses his observations prepared and organized are defined by law, by the company’s by- and opinions and takes part in the proceedings, with consultative laws, as well as by the Board’s rules and procedures as well as. powers.
Organization and operation of the Board of Directors Missions and powers of the Board of Directors, the Chairman of the Board and the Chief On June 9, 2004, the Board of Directors renewed the mandate of Executive Officer Chairman of the Board and Chief Executive Officer filled by one person (monistic model). In compliance with the provisions of article L. 225-35 of the Code The Board of Directors voted its own rules of procedure. These of Commerce, the Board of Directors lays down guidelines for the list, specify and expand on the organization rules defined by the company’s business and ensures that these guidelines are laws and regulations in force and by the company’s own by-laws. implemented. Subject to the powers expressly attributed to the The rules of procedure also integrate corporate governance Shareholders’ Meetings, and within the limits of the company’s principles applied by the company, which the Board is in charge purpose of business, the Board of Directors deals with all issues of implementing. that concern the company’s operations. Through its proceedings, The rules of procedure describe the modus operandi, as well as it resolves the issues confronting the company. It also carries out the powers and attributions of the Board of Directors and of its all the verifications it deems necessary. specialized committees, namely the Audit Committee and the The Board of Directors notably reviews and closes the Appointments and Compensation Committee. consolidated financial statements and the parent company The rules of procedure also specify the ethical standards that the financial statements, both annual and interim. It presents reports Directors must uphold, particularly confidentiality standards, as on the activities and performance of the company and its per article L. 465-1 of the Monetary and Financial Code (Code subsidiaries. It reviews the company’s management forecasts. monétaire et financier), articles 611-1 to 632-1 of the General Rules The Chairman of the Board of Directors organizes and manages of Procedure of the AMF, the French Securities Regulator, and the work of the Board of Directors. He convenes the meetings of European Regulation 2273/2003 on insider trading. The rules of the Board of Directors and is in charge of setting the agenda and procedure also forbid Directors from engaging in any trade involving producing the minutes of these meetings. He ensures that the Company shares for fifteen days prior to the publication of the company’s management bodies are functioning and, in particular, Company’s annual or interim financial statements. that the Directors are in a position to fulfill their mission. The Chief Executive Officer, in compliance with article L. 225-56 of The Board reviewed the credit lines taken out by the Company and the Code of Commerce, has the broadest powers to act on behalf its subsidiaries, and authorized an early dividend payment. of the company in every circumstance. He exercises these powers In addition, the Board of Directors reviewed the situation with within the limits of the company’s purpose of business and subject respect to the principles of corporate governance within the to the powers expressly attributed by law to the Shareholders’ Company, i.e. the membership of the Board of Directors and the Meetings and to the Board of Directors. He represents the Directors’ status with regard to independence criteria. In this company with respect to third parties. respect, it received the recommendations of the Appointments and However, in application of the rules of procedure, any transaction Compensation Committee. liable to have an impact on the Group’s strategy, financial structure, The Board of Directors approved the compensation (salary and or business must be previously approved by the Board of Directors. bonus) of the Deputy Managing Director and granted stock subscription options to Group executives and employees. Independence of the Directors The Board of Directors also examined the Company’s quarterly performance. At its meeting on December 16, 2004, the Board of To ensure proper corporate governance and in accordance with Directors heard a presentation on Rallye’s real estate and financial the recommendations of the “Bouton report”, the Board of investments. Directors sees that the Directors remain independent. The Board The Board of Directors was informed of all of the work of the therefore applied the criteria suggested by the “Bouton report” to Committees, as described below. review the Directors’ independence and their relationships with the company, and to determine whether these relationships might Information given to the Directors affect the Directors’ independent judgment or result in potential conflicts of interest. In compliance with article L. 225-35 of the Code of Commerce, The Board of Directors determined that five of the twelve members the Chairman and CEO must send to the Directors all the of the Board could be deemed independent, namely, Jean documents and information they need to carry out their mission. CHODRON de COURCEL, Jacques DERMAGNE, Jean LÉVY, The Directors receive the information they need to review the items Christian PAILLOT and Gilbert TORELLI. they will be asked to discuss at the Board meetings prior to these Sound corporate governance is also ensured by the diversity of the meetings, provided that this does not violate confidentiality rules. Directors’ expertise, experience and backgrounds, as well as by The Board of Directors is also informed by the Senior Management their availability and level of commitment. at least once every quarter of the state of business for the company and its main subsidiaries. The information includes sales, income Board activities in fiscal 2004 trends, debt and the position of credit lines that the company and its main subsidiaries can draw on. In 2004, the Board of Directors met seven times. The attendance Once every six months, the Board of Directors also reviews the rate was 86%. Group’s off-balance-sheet commitments. The Board of Directors reviewed and closed the provisional and final financial statements for the year ended December 31, 2003 Board committees and for the first half of 2004, as well as the management forecasts. The Board also approved the reports and resolutions to be The Board of Directors is assisted by two committees created submitted to the Ordinary and Extraordinary Shareholders’ Meeting in 2000: the Audit Committee and the Appointments and convened on June 9, 2004. Compensation Committee. The Board of Directors authorized the two following issues: The Board of Directors appointed the members of the Committees €400 million in bonds on January 13, 2004, maturing in and defined the committees’ powers and rules of operation. five years, i.e. January 20, 2009, increased to €500 million on April 30, 2004; €500 million in bonds on September 22, 2004, maturing in seven years, i.e. October 13, 2011.
2004 Annual report - Chairman’s report ■ RALLYE 36/37 Audit Committee The Chairman of the Audit Committee reported back to the Board on work done at each of these meetings. Membership The Audit Committee has three members of which two are The Appointments and Compensation Committee independent directors: André CRESTEY (Chairman), Jean LÉVY and Christian PAILLOT, who have been appointed for the duration Membership of their terms as Directors. The Appointments and Compensation Committee has three members of which two are independent directors: Jacques Missions DERMAGNE (Chairman), Gilbert TORELLI and Jacques DUMAS, The Audit Committee’s mission is notably to help the Board of who have been appointed for the duration of their terms as Directors in its task of reviewing and closing the annual and interim directors. financial statements. It also assists the Board whenever an event The Chairman and CEO is entitled to attend the Committee’s occurs that is likely to have a significant impact on the situation of meetings as a non-voting member, to present his proposals notably the company or its subsidiaries in terms of commitments and/or concerning senior executive compensation and stock option risk. It provides assistance on issues relating to compliance with allocations. the legal and regulatory framework and on the major disputes underway. Missions The rules governing the organization and operation of the Audit The Appointments and Compensation Committee is notably in Committee, as well as the committee’s powers and missions, have charge of helping the Board of Directors review applications for been defined by the Board of Directors and are included in the senior management positions, select new directors, define and rules of procedure of the Board. They were detailed and check executive compensation and stock subscription or purchase completed in a charter adopted in April 2004. option policies. If necessary, it reviews benefits and other forms of compensation for executives. Activities in 2004 The Appointments and Compensation Committee has drafted a The Audit Committee met five times in 2004, with all members charter confirming its powers and missions, notably as regards present. verifying that the corporate governance principles and the code of When the interim and annual financial statements were closed, ethics, notably in the Board of Directors’ rules of procedure, are the Audit Committee verified the closing process and took note respected and applied. of the comments and conclusions of the statutory auditors concerning consolidation procedures and the company’s Activities in 2004 accounts. The Committee also reviewed off-balance-sheet The Appointments and Compensation Committee met three times commitments, risks and accounting decisions on provisions as in 2004, with all members present. well as the relevant changes in the legal and accounting It examined the terms and conditions for terminating the activities framework. of the Deputy Managing Director. The Committee met specifically to make knowledge about the The Appointments and Compensation Committee made details of implementation of the new International Financial recommendations concerning proposals for appointing new Reporting Standards (IFRS) and to review the decisions taken and Directors and renewing the terms of current Directors, and the main impacts of the transition to IFRS on the financial concerning the membership of the technical committees. statements. The Committee also examined the independence of Directors, in The Committee also took note of progress on the report on internal light of the recommendations of the “Bouton Report”. control procedures implemented by the company that the The Committee reviewed executive compensation and proposed Chairman of the Board must now submit to the Annual General stock subscription allocations. It also examined the terms Meeting of Shareholders. for determining fees paid to the Directors, the Censor and the The Audit Committee also took part in the process for renewing members of the technical committees. the terms of a Statutory Auditor and of a Deputy Statutory Auditor. The Committee’s Chairman reported back to the Board of Directors In this respect, the Audit Committee presented its conclusions and on the activities of the Appointments and Compensation recommendations to the Board of Directors. Committee. Assessment of the conditions in which the Board Rallye’s objective in carrying out internal controls is to prevent and of Directors operates manage organizational risk, i.e., the risk of error or fraud, and to verify the efficiency of the company’s organization and the quality The rules of procedure provide for the organization at regular of its accounting and financial reporting systems. intervals of a debate and of a formal assessment of the Board In this context, the main risks identified affect: 1) information of Directors’ operations. The procedure is carried out by the provided by the subsidiaries, the quality of which depends on their Appointments and Compensation Committee, with the help of an control of the risks associated with accounting and financial external consultant if the committee so wishes. information and of operating risk; and 2) the production of the To this effect, the independent Directors met during the year and parent company and consolidated financial statements, which determined that the Board of Directors had functioned satisfactorily. must provide a true and objective representation of the Group’s They also noted that they would henceforth be given a more financial position, information systems, off-balance sheet specific presentation of Group activities. commitments, assets and cash. In 2005, the Board of Directors intends to carry out a new The control environment within the Company consists mainly of assessment of its own organization and operation. the corporate governance principles and the Group’s organization principles. It has been designed carefully and is applied ■ INTERNAL CONTROL PROCEDURES SET UP scrupulously, so that all types of risk can be managed as a whole BY RALLYE and so as to provide a reasonable assessment of potential risks of any kind facing the Group. As is the case with all control systems, The description of the company’s internal control procedures takes however, it can only provide a reasonable assurance, rather than into account opinions published by various organizations, an absolute guarantee, that risks have been eliminated or brought including the opinion published by AFEP/MEDEF (French under complete control. Association of Private Enterprises/French Business Confederation) Each member of the Company is responsible, at his or her own on December 17, 2003; the opinion published by the Legal level, for implementing, assessing and optimizing the internal Committee of ANSA (the National Association of Limited Liability control system. Companies) on December 5, 2003, and the opinion of IFACI (the French Institute of Audit and Internal Control) issued on January 26, General organization of internal control procedures 2004. It also takes into account the recommendations of the AMF, the French Securities Regulator (Autorité des Marchés Financiers) Several internal control systems have been implemented to issued on January 23, 2004. provide a reasonable assurance that verifications are carried out The information below was obtained from all those responsible for within Rallye and within its operating subsidiaries whose financial implementing Rallye’s internal control procedures. Based on this statements are consolidated by the Rallye group. Note that the information, a factual description of the control environment and subsidiaries have their own internal audit services designed to procedures is given. manage their own internal control. With a view to providing reliable financial information and Objectives of internal control procedures communication, Rallye ensures that the organization as a whole complies with the following references in carrying out its functions: Internal control procedures include all rules, directives and the manual of accounting and consolidation procedures, procedures within the company designed to provide a reasonable the French general chart of accounts, the code of ethics outlined in assurance that the behavior of company employees complies with the Board of Directors’ rules of procedure; the Audit Committee legal and regulatory provisions in force and with the relevant charter and the Appointments and Compensation Committee charter. internal standards. These procedures are derived from the values, guidelines and Senior management and the administration and finance objectives defined by the executive bodies and their representatives, department notably as regards risk management. They ensure that internal and Rallye’s administration and finance department, which reports back external communications honestly reflect the company’s situation to senior management, supervises all of the staff departments: and activities. controlling, accounting, cash management and legal affairs.
2004 Annual report - Chairman’s report ■ RALLYE 38/39 The Board of Directors and the Audit Committee The company’s financial communication and that of its Given their missions as defined in the company by-laws and the rules subsidiaries rely increasingly on shared software to generate of procedure, the Board of Directors and the Audit Committee take quantitative data. The security of the subsidiaries’ IT systems is part in the internal control process by expressing opinions and taken into account from the design stage and is implemented making recommendations to senior management and through the through constant monitoring. analyses and investigations that they carry out or commission. Five years ago, Rallye also set up a legal auditing department, which provides assistance to the company and its subsidiaries, Statutory auditors and independent consultants and carries out specific reviews and investigations as needed, to Rallye has two Statutory Auditors. Their mission is to verify that the prevent and detect legal anomalies and problems in the Group’s annual financial statements are true and fair, in accordance with management. accounting rules and principles, and give an accurate picture of The legal department and the legal auditing department regularly the company’s performance and of its assets at the end of the update senior management and the administration and finance previous fiscal year. department on the main legal disputes underway and on the As part of their mission, the Statutory Auditors also examine how attendant risks. the internal control procedures are organized and applied in practice. If necessary, they are asked to make recommendations. At Rallye As part of its investment or financing projects, the company • Monitoring operating risks: often employs independent consultants in economic, financial, organizational, and legal matters. – Cash, financing and expenditures The cash management team, within the administration and Description of internal control procedures finance department, is in charge of drafting financial forecasts (e.g., financing and investment policy proposals, financing plans Within the company, internal control procedures are centralized. and cash budgets), of managing and verifying the Group’s cash Because Rallye is a holding company, its procedures are aimed position on a daily basis, and of monitoring the banking terms mainly at drafting and processing financial and accounting previously negotiated. information to ensure that the consolidated financial statements Senior management receives weekly reports of cash movements are reliable and to monitor the subsidiaries. during the week and the positions of the credit lines, along with the respective terms and conditions. In the operating subsidiaries Financing arrangements can optimize management of the balance Each Rallye subsidiary has its own internal audit department sheet and of financial debt, and enhance the Group’s financial whose mission is to assess internal control activities and structure, it must be approved by the Board of Directors depending procedures in order to obtain a reasonable assurance that the on their level of complexity (e.g., bilateral lines, bond issues, company’s own risks are under control. structured financing). Independent consultants validate the legal, The Group controls the quality of the information supplied by the technical and accounting aspects as necessary. subsidiaries, notably by appointing the same person to several All expenditures must follow a formal authorization procedure, so executive bodies, but also through the meetings of the Audit as to facilitate and reinforce the control of Company spending, Committees and Appointments and Compensation Committees. from financial investments to general administrative expenses. The Committees, together with senior management, receive the Invoices must be authorized at the appropriate management level support of the staff departments in the subsidiaries. before the payment can be made. Information is also verified when Rallye’s central controlling – Payroll and compensation department monitors the subsidiaries’ information systems. It is The administration and finance department is in charge of payroll also verified at the monthly variance analysis meetings with the organization and management. operating subsidiaries. The legal department regularly monitors changes in legal and The financial statements are prepared in compliance with tax and social data that may affect payroll management. accounting rules. When necessary, decisions are validated by The Appointments and Compensation Committee reviews senior management, the finance department and the Statutory compensation for senior executives, which is then submitted for Auditors. approval to the Board of Directors. Compensation for all other The Statutory Auditors are responsible for auditing the parent employees is validated by senior management. company and consolidated financial statements and certifying that they are fair and true in a report to the shareholders. – IT system security On the basis of their audit of the financial statements for 2004, the Access to all IT systems (e.g., the accounting system, cash Statutory Auditors identified no significant weakness or major management and payroll) is limited by a personal authentication deficiency in the internal control system. and control system. This contributes to the efficiency of the Beginning January 1, 2005, Rallye group will publish consolidated internal control system and helps ensure the safety and integrity of financial statements according to International Financial Reporting the data and data processing. Standards (IFRS) and will carry out reclassifications and Management of IT systems risk is mainly based on automatic daily adjustments to produce company financial statements that meet backups of all data. the requirements of the French tax authorities. Furthermore, the backups are stored at a separate site. During the 2004 transition period, the Group will continue to apply • Producing and processing financial and accounting data: French accounting standards but will also prepare financial statements according to IFRS, in order to have a reference basis – Production of the parent company and consolidated financial for the 2005 financial statements. statements A report on the impact of the IFRS is provided in the reference The administration and finance department is responsible for document. preparing the financial statements. These can be a source of The Group regularly monitors changes in off-balance sheet financial risk, particularly as regards the accounting records, the commitments, which are described in the notes to the consolidated consolidation process, and the process for reporting off-balance financial statements. sheet commitments. These commitments linked to on-going activities and to exceptional The Accounting Officer supervises a team of three employees to transactions are listed and are the subject of a half-yearly report implement a standard internal accounting system in compliance which enables to decide whether provisions need to be set aside with accounting procedure manuals, using “Agresso” software to to cover risks related to these commitments. produce the parent company financial statements, and “Equilibre” The holding company’s assets are monitored weekly. Assets are software to produce the consolidated financial statements. The analyzed in terms of their market value, and compared with debt. Accounting Officer is in charge of ensuring that the methods employed are consistent, reliable and homogenous and that the – Controlling deadlines set by the Board of Directors and its Committees are This department reports to the Chief Financial Officer. respected. The databases are generated by the subsidiaries’ accounting Each subsidiary has a monthly budget, which is sent to central software and the central sales management software. controlling at Rallye. The monthly statements are analyzed and The department’s mission is to: compared with accounting and consolidated forecasts. – monitor key business indicators for the Company and its At each subsidiary’s level, the financial records are validated by subsidiaries, the Statutory Auditors and signed by the subsidiary CFO or – monitor action plans, control budgets and analyze differences, Accounting Officer, who vouch for the reliability of their content. – produce monthly Group management and financial reports for The consolidation process is carried out every six months by the senior management, central consolidation team. For each consolidation exercise, the – help prepare the financial statements, team prepares a file listing all restatements and eliminations, and – liaise with the Statutory Auditors during their audit. documenting the verifications carried out, to guarantee traceability.
2004 Annual report - Chairman’s report ■ RALLYE 40/41 – Financial communication – Press releases published along with interim and annual Financial communication is in charge of coordinating information accounts or whenever an event or a transaction occurs, which to the financial community in order to provide a clear, transparent is considered significant and likely to have an impact on the stock and precise understanding of the Group’s performance and price. outlook. – Internet website: www.rallye.fr. In practice, financial information is prepared by the finance The company also regularly publishes a reference document, department and disseminated via various media, in accordance which is filed with the AMF according to the a posteriori control with legal requirements and AMF regulations. procedure in force since 2002. The document is subject to internal – Mandatory publications in the BALO government bulletin of control procedures at various stages of the drafting process and quarterly sales and of interim and annual parent company and also to a verification of financial and accounting information by the consolidated financial statements, along with the notes. Statutory Auditors, through to its publication and physical – Annual presentations of Group results organized by SFAF distribution in paper format, and online on the AMF website and (French Financial Analysts’ Society). the company’s website. Statutory Auditors’ Report
PREPARED IN ACCORDANCE WITH ARTICLE L. 225-235 OF THE CODE OF COMMERCE (CODE DE COMMERCE), ON THE REPORT PREPARED BY THE CHAIRMAN OF THE BOARD OF RALLYE, ON THE INTERNAL CONTROL PROCEDURES RELATING TO THE PREPARATION AND PROCESSING OF FINANCIAL AND ACCOUNTING INFORMATION.
(Translated from French into English)
To the shareholders,
In our capacity as Statutory Auditors of Rallye and in accordance with article L. 225-235 of the French Company Law (Code de Commerce), we report to you on the report prepared by the Chairman of your company in accordance with article L. 225-37 of the French Company Law (Code de Commerce) for the year ended December 31, 2004.
It is for the Chairman to give an account, in his report, notably of the conditions in which the duties of the Board of Directors are prepared and organized and the internal control procedures in place within the Company.
It is our responsibility to report to you our observations on the information set out in the Chairman’s report on the internal control procedures relating to the preparation and processing of financial and accounting information.
We performed our procedures in accordance with professional guidelines applicable in France. These require us to perform procedures to assess the fairness of the information set out in the Chairman’s report on the internal control procedures relating to the preparation and processing of financial and accounting information. These procedures notably consisted of: – obtaining an understanding of the objectives and general organization of internal control, as well as the internal control procedures relating to the preparation and processing of financial and accounting information, as set out in the Chairman’s report; – obtaining an understanding of the work performed to support the information given in the report.
On the basis of these procedures, we have no matters to report in connection with the information given on the internal control procedures relating to the preparation and processing of financial and accounting information, contained in the Chairman of the Board’s report, prepared in accordance with article L. 225-37 of the French Company Law (Code de Commerce).
Paris-La Défense and Neuilly-sur-Seine, May 9, 2005
The Statutory Auditors
KPMG Audit BARBIER FRINAULT & Autres Département de KPMG SA ERNST & YOUNG
Catherine CHASSAING Henri-Pierre NAVAS
2004 Annual report - Chairman’s report ■ RALLYE 42/43