March 9, 2017 / 7:45 AM / a year ago

UPDATE 1-Weakness in France drags down profits at retailer Carrefour

* 2016 operating profit 2.351 bln euros vs est 2.37 bln

* Operating margin in France down 40 bp to 2.9 pct of sales

* Eyes 2017 group sales growth of 3-5 pct at constant forex

* Eyes lower 2017 capex, further free cash flow growth (Adds details, CFO comments)

By Dominique Vidalon

PARIS, March 9 (Reuters) - Carrefour, the world’s second-largest retailer, on Thursday pledged to grow sales and free cash flow this year after posting a steeper-than-expected fall in 2016 earnings, as profits dropped at its core French market.

Europe’s biggest retailer also said it was ready to float its Carmila property unit and its Brazilian business this year, market conditions permitting.

The French company, which has started looking for a successor to chairman and chief Executive Georges Plassat whose mandate expires in May 2018, also announced it would hold its annual shareholders meeting on June 15.

Carrefour kept its 2016 dividend unchanged at 0.70 euros per share after recurring operating profit fell 3.8 percent to 2.351 billion euros ($2.5 billion) in 2016, below an average of 2.37 billion euros in a Reuters poll.

Since taking over as CEO in 2012, Plassat has presided over signs of a recovery at Carrefour, which makes 73 percent of its sales in Europe and around a quarter of sales in France.

He has focused on price cuts along with an expansion into smaller convenience stores, while also renovating its chain of hypermarkets, starting in France.

Yet while Carrefour has made good progress in most European countries and in Brazil, its second-largest market, it has lagged behind on its French hypermarkets.

In France, operating profits fell 13.4 percent, with margins down by 40 basis points to 2.9 percent.

This reflected costs tied to the integration of the loss-making Dia discount stores and increased promotional activity at French hypermarkets amid cut-throat competition in the sector.

“2017 will be the year when Dia results start improving,” finance head Pierre-Jean Sivignon told a conference call.

Elsewhere in Europe, however, operating profits rose 25.7 percent, driven by a continued recovery in Spain and improved profitability in Italy.

In Latin America, Brazil put in a strong performance in spite of difficult market conditions but China, which makes 5 percent of sales, was still a loss-making area.

“The second-half was a low-point for China,” Sivignon said.

Carrefour vowed to grow group sales by 3-5 percent this year and increase free cash flow, as it pares back on investments to renovate its stores although it would continue to expand its store network and invest in E-commerce, added Sivignon.

$1 = 0.9492 euros Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta

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