China Cord Blood Earnings Call Nuggets: Private Labels, France’s Pricing Environment

On Monday, China Cord Blood Corp (NYSE:CO) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Private Labels

Antoine Giscard-d’Estaing – CFO: On the first question, you all know now that financial expenses – so on the question on taxes you all know that financial expenses are not deductible above a certain threshold which is 85% of them in France and this has an impact for us around EUR15 million in 2012. So it’s a number but compared to the magnitude of tax expenses it’s probably qualitatively low number but this is the number as it is today. Regarding your second question on the soft environment and our retailers and our casino should react to that. I think I can say the following. The first thing is, we have put a lot of efforts around the private labels. We think this is a relevant choice. This is an area which is probably an excellence of Casino, our private labels offer very good value for money. They have very affordable prices, good quality. It’s only part of the offering and by definition, this is not sufficient to be a total strategy yet. As always in an environment where people will try to get cheap prices, private labels are key. So, we will stay very aggressive so to speak there to maintain our real leadership. This is very true at Leader Price (Technical Difficulty) (indiscernible) when you optimize your cost base (indiscernible) commercial efficiencies. It’s really too early to say how 2013 will look because as you know for national brands the discussions will only start from mid-November (indiscernible) to build development resources to capable to have this flexibility.

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France’s Pricing Environment

Jerome Samuel – HSBC: Question on France, have you noticed the stiffening of the pricing environment and then coming back on your remarks about not buy market shares, does that mean that you want to protect your margin at competitive price and that you want to get close to your original target of increasing profits at competitive price? That’s the first question, and the second one is about the evolution of franchisee at Leader Price, should we expect further decrease in terms of number of franchisee and if you could come back on the impact of this on the quarter?

Antoine Giscard-d’Estaing – CFO: The environment, as I have mentioned, has been soft for everyone and in the soft environment there is a lot of communication on why your banner is good and why your prices are okay, and et cetera, et cetera. So, I would not characterize the situation as very different from what we had in the past. Competitors are efficient. They try their best as we try to do it. So, I don’t there are major changes. The thing which is key is that when you read a lot of reports, you still see that shoppers still favor formats that we think are the very core of our organization. The idea that you go to proximity stores to shop efficiently is now something which is very common. There is a good level of interest in private labels, because they offer these good purchasing opportunities that I mentioned. So, small stores with high prices are relevant, our discount stores are relevant, e-commerce for non-food category is very relevant. So these are pillars of our strategy. They are still extremely valid in the present circumstances probably will be even more valid next year. On the subject of not buying market share, it has been the constant strategy of Casino to manage safely the equation of top line and profitability. Jerome, in the case that you mentioned, I think we have shown already in the first half that it was more important to reduce the cost – it was important to reset the prices efficiency at either price we did last year, then to monitor that very carefully then to have a very good in-store execution and at the same time, manage the cost base, so as to be capable to offer good prices. So the vision was that, it was a combination of cost initiatives and price initiatives that resulted into the restoration of the profitability, this has happened. As we see a situation in the end of September, this is still the case, so this is our strategy. Now within this strategy, you have some room to do some selective commercial initiatives as the one I mentioned for Franprix and quite frankly reducing the top SKUs – the top selling national brands at Franprix was a good initiative to (allocate) more momentum. So this is a type of strategy that we like, something which is in a way financed before you started or where you have a clear vision of the balance between your investments and your capacity to keep your margins under the control. So we are happy with the situation of competitor price and we can confirm what we said that we see this global organization both competitor price and each of them being good as well in the right direction to achieve what we said at the beginning of the year. Regarding the number of franchisees, we don’t expect major changes in the fourth quarter. We don’t see any reason for any deconsolidation of them and therefore we should no longer have this negative impact of the big move of DSO last year.