Gandur report

ROBERT GANDUR XPERT AREF PARTA CORDENASATE ASTRE EC EUCRE PROSCA COLE ARGLRA . A CHAMARE TF ('MHER: INTERNATIONAL PRES A008SA1 1E3AR0S AW VISTRAT FDE ARR Paris, 4 February 1998 Monsieur Jean-Paul Clément Avocat à la Cour 78, avenue Mozart 75016 - Paris E/C171611 Maître, In the context of the proceedings between your clients, Monsieur Bernard Collorafi and the companies Sebol, B et O and Les Pins, and the company McDonald's France, you instructed me, by letter of 8 January 1998: - to assess, as at 1 January 1998, the impact of the opening of the McDonald's restaurants Antibes Nord and Ouest and Vallauris on the turnover and results of the company Sebol, operator of the Antibes/Centre commercial Carrefour restaurant. - to assess, as at 1 January 1998, the impact of the opening of the Antibes Ouest and Vallauris restaurants on the turnover and results of the company B et O, operator of the Antibes Nord restaurant, - to determine the rents and fees paid to McDonald's that can be borne by the companies Sebol, B et O and Les Pins. - to quantify the loss suffered by the three companies as a result of the termination of the agreements notified by McDonald's on 2 January 1998, by capitalising the loss of gross self-financing margin over the period normally remaining to run on the said agreements. After briefly recalling the facts and setting out a few facts about the activity of McDonald's restaurants, I will set out the various points of this assignment. HARUE DE CRETELLE, ZONIZ HAMIS, TELEPHONE: 01.4049.0889. TELECOPIE. 01.12.14.08 AN Companies Sebol, B et O and Les Pins, lessee-managers of the company McDonald's France Consultation of 4 February 1998 A. RECALL OF THE FACTS 1. - By agreement of 5 August 1987, the company McDonald's France granted by lease-management to Monsieur Bernard Collorafi, for a period of twenty years, a fast-food business located at the Carrefour shopping centre, chemin Saint-Claude in Antibes, in return for: • a base fee of 12% of the turnover excluding tax achieved by the restaurant, with a minimum of 1,800,000 francs per year. - a service fee of 5% of turnover excluding tax. By an amendment of 31 August 1987, Monsieur Collorafi assigned and transferred to a company Sebol - of which he owns almost all the shares - all the rights and obligations arising from the agreement of 5 August 1987. This restaurant enjoyed rapid and continuous growth until 1993, both in terms of activity and results, followed by a stabilisation in 1994. For that last year, the company Sebol achieved turnover of 27.1 million francs and a net result after corporation tax of 1.3 million francs. These figures were in line with the forecasts presented to Monsieur Collorafi by McDonald's on signing the agreement, which cited - once cruising speed was reached (third year, therefore 1990) - turnover of 19 million, effectively exceeded that year (21.3 million francs). 2. - In July 1995, a competing restaurant under the Quick brand, with a drive-through service allowing customers to be served in their vehicles, opened its doors a few hundred metres from the restaurant operated by Sebol, on a roundabout on the road leading from the Antibes conurbation to the motorway toll 4 B. This competition was quickly to affect the course of Sebol's activity, whose turnover fell from 27.1 to 24.8 million francs in 1995 and whose net result fell by one million francs. In order to counter this siting, McDonald's decided in 1996 to open, opposite the Quick restaurant, and consequently not far from the restaurant operated by Sebol, a McDonald's restaurant fitted with a drive-through. Robert Gondur - Expert agréé par la Cour de cessaiion Companies Sebol. 9 et O and Les Pins, lessee-managers of the company McDonald's France Consultation of 4 February 1998 The lease-management of this new restaurant, known as “Antibes Nord”, was entrusted to him for twenty years from 9 October 1996, in return for: - a base fee of 20% of turnover excluding tax with a minimum of 2,940,000 francs per year, reduced, for 1997 only, to 17% of turnover with a minimum of 2,160,000 francs, - a service fee of 5% of turnover excluding tax. By an assignment amendment, the rights and obligations of this agreement were transferred to an EURL named B et O of which Monsieur Collorafi is the sole partner. The results forecasts drawn up by McDonald's departments showed turnover of 20 million francs from the first year, identical over the following nine years, and a net result of 161 COO francs in the first year, rising to an average of 791,000 francs over the first ten years of activity, and lastly a gross self-financing margin after repayment of the principal of loans, of respectively 452,000 francs and then 891 0C0 francs. For 1997, the first full year of operation, the company B et O achieved turnover of only 13.5 million francs, one third below the forecasts, and is expected to record a net loss of 1.2 million francs. 3. - Shortly afterwards, McDonald's pursued its siting policy by deciding notably to open a third restaurant in Antibes (known as “Antibes Ouest”) and another nearby point of sale at Vallauris. These restaurants are respectively less than five and seven kilometres from the Antibes/Centre commercial Carrefour and Antibes Nord sites. Monsieur Collorafi asked McDonald's to grant him the lease-management of these two new businesses, but only that of the Antibes Ouest restaurant was granted to him, by agreement of 18 June 1997. This agreement, whose term was set at 2B April 2000, with the possibility for the lessee- manager to extend it until 28 April 2017, stipulates: a base fee of 15% of turnover excluding tax with a minimum of 1,200,000 francs. a service fee of 5% of turnover. Rober Gandur - Excent agréé par la Cour de cassation Companies Sebol, B et Oel Les Pins, lessee-managers of the company McDonald's Franca Consultation of 4 February 1994 - an equipment fee of 4.5% of turnover, in return for the financing of the fittings and equipment of the restaurant, the purchase and financing of which were provided, unlike the other two lease-management agreements, by the owner company and not by the lessee-manager. By an amendment of the same day, Monsieur Collorafi transferred to the SaRL Les Pins, of which he owns the entire share capital, all the rights and obligations of this agreement. The operating forecasts given by McDonald's to Monsieur Collorafi were as follows: - initial turnover of 13 million francs, to increase by 2% per year, - a net profit of 133 CO0 francs in the first year, rising to an average of 861,000 francs per year over the first ten years of operation, a gross self-financing margin of 426,000 francs in the first year and of 957 OCO francs per year on average over the first ten years. The first financial year of the company Les Pins lasted only eight months, because the Antibes Ouest restaurant opened on 29 April 1997. Its turnover is 6.4 million francs, i.e. an annual trend of 9.3 million francs. The loss incurred over the eight months is expected to reach 440,000 francs. Noting the collapse in the turnover of the company Sabol (from 24.7 million francs in 1995 to 18.3 million in 1996 and to 11.7 million francs in 1997), the large gaps between the operating forecasts given by McDonald's at the openings of Antibes Nord and Ouest and reality, the lack of profitability of the three restaurants managed and the financial difficulties that ensue, Monsieur Bernard Collorafi asked himself about the origin of these difficulties and about the remedies to be applied. Moreover, the company McDoncia's France has just terminated on 2 January 1998 the three agreements, because the companies of Monsieur Collarafi were unable to honour the contractual fees in full. It is in this context that you asked me to intervene. Rober Gandur - Expert agréé sor la Cour de cassation Companies seboi. Bal O and Les Pins, lessee-managers of the company McDchald's France Consultation of 4 February 1998 B. CHARACTERISTICS OF THE ACTIVITY 1.-Sector statistics: national, regional, local The activity of the restaurants operated by Monsieur Collorafi falls within the hamburger chain sector, whose growth is significant at national level, as shown by the following table, which shows the change in turnover of catering in France: Sales of the out-of-home catering sector (in billions of francs) Out-of-home catering Of which commercial catering Of which economy catering (chains] Of which hamburger chains 256| 153l Change + 2.85% + 2.82% + 23.70 % + 26.92% This market is dominated by the two brands, McDonald's and Quick: it is growing more through the increase in the number of points of sale than through the increase in the unit turnover of existing restaurants, which reach maturity after one year of operation: If McDonald's saw its French turnover, in own operation as well as in lease-management, rise from 5.4 billion in 1994 to 8.4 billion in 1997 (+55%), this is thanks to the increase in the number of restaurants, which grew from 354 to $30 (+ 78 7) while the turnover of the restaurants operated throughout the period rose only by 1.24% in 1995 and fell by 8.35% in 1996 (+ 1.43% in 1997). That is to say that McDonald's development strategy in France - and therefore that of its turnover deriving notably from the rents and fees paid by the lessee-managers - rests on the increase in the number of restaurants and not on that of the turnover of existing restaurants, the new restaurants being located either on sites hitherto “unexplored”, or on markets in which the existing restaurants have reached an estimated maximum or better turnover. In the South-East region, to which Antibes and its surroundings belong, McDonald's activity statistics are as follows: Robert Gandur - Excent agréé par la Cour de cassatior: Companies Sebol, a el Oet Les Pins, lessee-managers of the company McDonald's France Consultation of 4 February 1998 Statistics of McDonald's restaurants located in the South-East region Number of company-operated restaurants Number of franchised restaurants Total number of restaurants Turnover (billions of francs) Growth in turnover (in %) of which on “comparable” restaurants 11% " having been in operation for 12 months in years n and n - 1 1.345 | 1,619 1,961 | 1.841 + 21.121 - 6,12 + 4,89 + 3,92 - 8.25 + 0.02 As for the restaurants of the Alpes-Maritimes (excluding Antibes, Antibes Nord and Antibes Ouest) and of the Var, the change in turnover is as follows (see detail in annex |): Statistics of McDonald's restaurants located in the Alpes-Maritimes and the Var Number of restaurants: - Alpes-Maritimes - Var - Total Turnover (millions of francs) - Alpes-Maritimes - Var - Total Growth in turnover in % (of which on comparable restaurants " in % Turnover per restaurant (millions of francs +9.68 + 5,58 +15.60 + 5.11 1 - 9.34 + 1.12 16.875 ; 18.235| 18.389 | 15.609| 14.821 il ayan: une expioliotion de : 2 mois les années net n- 1 The change in turnover of the so-called comparable restaurants, as defined by the chain, whatever the scope used - national, regional or local - is marked by near-stagnation in 1994, a rise of one to five per cent in 1995, a sharp fall in 1996 due to the “mad cow” crisis (8 to 9%) and a renewed stagnation in 1997 (0 to + 1%), which incidentally explains why the forecasts of McDonald's France at new openings assume stabilised figures after one year. Robert Gandur - Expert agréé parla Ceur de cassatien Sociélés Sebol. B et Oel les Pins, locataires gérants de la société McDonole's france Consultation of 4 February 1998 In the remainder of this report, I will consider that the change in the turnover of the restaurants operated by Monsieur Collorafi, notably Antibes/Centre commercial and Antibes Nord, should have followed, barring a change in the local market, that of the comparable restaurants of the brand in the Alpes-Maritimes and the Var. 2.- The customers of the Antibes and Antibes Ouest restaurants According to a survey carried out from 1 to 6 April 1997 (i.e. before the opening of Antibes Ouest) by a team of students in commercial studies, the characteristics of the customers frequenting the Antibes/Centre commercial restaurant are said to be as follows: - Origin of the customers: 45% from Antibes, 12% from Sophia Antipolis, 6% from Nice, 6% from Vallauris: - Activity of the customers: 35% were at work, 29% were coming from home, 20% were shopping, 13% were passing through: - Place of residence of the customers: 26% live in Antibes, 12% in Nice, 7% in Vallauris and also 7% in Cannes: - 44% of customers eat two to six meals outside their home, 22% every day, 16% one meal per week and 13% 1 to 3 meals per month: - 31% use a fast-food restaurant two to six times a week, 25% once a week, 24% one to three times a month and 13% less than once a month: 35% of these customers go to the McDonald's in Antibes less than once a month, 32% between one and three times a month, 20% once a week and 12% two to six times a week. The customers are therefore essentially local: despite the existence of a not insignificant clientele of regulars of fast-food restaurants and of McDonald's, the vast majority frequent this type of restaurant occasionally. Robert Gandu - Expen agréé por la Cour de cossalion Companies Seboi, a el Oet Les Pins, lessee-managers of the company McDoncld's France Consultation of 4 February 1998 The same survey (also a sample of 1,000 people) carried out among the customers of the Antibes Nord restaurant gives the following information: - Origin of the customers: 49% from Antibes, 8% from Sophia Antipolis, 6% from Vallauris, 5% from Juan les Pins and 5% from Nice: - Activity of the customers: 46% were at work, 27% were coming from home, 16% were passing through, 7% were shopping: Residence: 43% live in Antibes, 7% in Vallauris, 7% in Nice and 5% in Juan les Pins: - 41% of the customers eat two to six meals outside their home, 24% every day, 18% one meal per week and 15% one to three meals per month, - 31% frequent a fast-food restaurant two to six times a week, 28 % once a week, 28% one to three times a month and 7% less than once a month, - 32% of the customers go to the McDonald's in Antibes Nord one to three times a month, 30% less than once a month, 23% once a week and 14% two to six times a week. The customers of the Antibes Nord restaurant thus present the same characteristics as those of Antibes/Centre commercial Carrefour, which is explained by the proximity of the sites of the two restaurants. It is noted, however, that at Antibes Nord there is a larger presence of passing customers, due to the existence of a drive-through service, which accounts for approximately 50% of sales. For the Antibes Ouest restaurant, which opened very recently, I have not been aware of a similar survey. 3.- Local competition Until July 1995, the main competitor of the Antibes restaurant was a fast-food restaurant under the Flunch brand, established within the Carefour shopping centre: however, this restaurant was already in place before the opening of the McDonald's in 1987, so that this presence has no bearing on the change in the turnover of the latter. Robert Gandur - Expert agréé par la Cour de cassation Companies Sebol, B et O and Les Pins, incataires-gérants de la société McDonala's Fronce Consultalion du 4 févier 1998 In July 1995, as already seen, a Quick restaurant was added, equipped with a drive-through service, a few hundred metres from the Carrefour shopping centre. Because of this proximity, this restaurant undoubtedly became a serious competitor for the McDonald's of Antibes/Centre commercial Carrefour. In October 1996, the McDonald's restaurant of Antibes Nord, also equipped with a drive-through and operated by the company B el O of Monsieur Bernard Collorafi, opened opposite the Quick and therefore also in the immediate vicinity of his first restaurant, the McDonald's of the Carrefour shopping centre. In April 1997, two new McDonald's restaurants opened at Antibes Ouest (operated by the company les Pins) and Vallauris, that is to say less than seven kilometres from the Antibes/Centre commercial and Antibes Nord restaurants. I visited the restaurants in question and their surroundings. I have not been aware of other openings of fast-food restaurants likely to have a significant impact on the operating conditions of the restaurants operated by Monsieur Collorafi. In these circumstances and, from the general to the particular, the phenomena likely to have influenced the activity of these restaurants are the following: • the general change in the turnover of the sector, at national and local levels and more particularly of the other McDonald's restaurants of the Alpes-Maritimes and the Var, already mentioned above: general local events, such as the change in the local population, but no significant fact has been reported to me: the change in local competition and notably the opening of the fast-food restaurants under the Quick and McDonald's brands. The following two paragraphs attempt to quantify the share taken by these phenomena in the change in the turnover of Sebol (Antibes/Centre commercial Carrefour and Antibes Nord) and their impact on its results. Robert Gandur - Experi agréé par la Cour de cossetion Companies Sebol, B et Oet Les Pins, lessee-managers of the company McDonald's fronce Consultation of 4 February 1978 C. ASSESSMENT OF THE IMPACT OF THE OPENING OF THE McDONALD'S RESTAURANTS ANTIBES NORD AND OUEST AND VALLAURIS ON THE COMPANY SEBOL I.- Impact on turnover In order to assess these impacts, I studied the monthly change in the turnover of the Antibes/Centre commercial Carrefour restaurant from January 1993 to December 1997. These figures are set out in the following table: January (February March April May June July August ¡September October November December Total F. F. F. F. 1 523 $23 F. TT 654 693 Shown graphically, the change in these figures is as follows: Rober Gandur - Erpert caréé par la Cour de cassation EVOLUTION DU CHIFREITATFAIRES MENSUFI DU MODONALD'S D'ANTIBES (SEBOL SA) DE 1993 A 1997 CA mensuels HT en Г. Movonne mobite semestrielle des CA mensuels HT en F. Movenne mobile semesirielle suns ouvertures Antibes Nord et Oues! Droile des moindres carrés Opening of McDonald's Antibes Ouest and Vallauris 2,250.000 Opening of McDonald's Antibes Nord Opening of Quick MONTH Companies Sebol, Bel Oet Les Pins lessee-managers of the company McDonald's France Consultalion cte 4 lévrier 1998 It therefore appears that at least the creation of the Quick and McDonald's Antibes Nord restaurants had a profound and probably reversible impact on the turnover of the company Sebol. I sought to quantify these impacts and, to do so, I first calculated the monthly seasonal coefficients from sales from January 1993 to December 1994. In the table on the following page are shown the turnover figures for these two years and the share taken by each month in annual turnover: the seasonal coefficients result from the arithmetic mean of the share of a given month in the annual turnover of 1993 on the one hand, and of 1994 on the other. Robert Gandur - Expert agréé paria Cour de cassation CALCULATION OF THE 1993 AND 1994 SEASONAL COEFFICIENTS OF SA SEBOL Month January February March April May June July August September October November December 7,06 8,29 7,79 9,80 10,53 8,54 9,10 7,60 Turnover - 1,90% Average percentage 7,11 7,07 7,06 7,91 7,75 8,43 8,36 7,83 7,81 7,97 7,85 9,44 10,75 10,64 8,72 8,63 8,54 8,82 7,94 7,77 100,00 100,00 Companies Jebol, 3 el O and Les Pins, lessee-managers of the company McDonald's France Consultation of 4 February 1998 From the seasonal coefficients calculated, I estimated the turnover that should have been achieved monthly by Sebol in 1995 had the year's sales followed those of the other McDonald's restaurants of the Alpes-Maritimes and the Var, i.e. plus 5.1% (expected turnover) and I compared it with the actual monthly turnover for 1995. These comparisons are set out in the table on the following page. Until the opening of the Quick in July 1995, actual monthly turnover was 2.11% below expectations, which is an insignificant gap. But from August to December 1995, after the opening of the Quick, a sharp deterioration is noted, since the figures achieved are 24.17% below expected sales. It can therefore be considered that the opening of the Quick cost the company Sebol 22.06% (24.17 - 2.11) of its turnover. In order to calculate the impact of the opening of the McDonald's Antibes Nord, I calculated in the same table what turnover for 1995 would have been had the opening of the Quick occurred as early as 1 January 1995, that is to say by applying to actual turnover from January to June 1995 a coefficient of 0.7794 (1 - 0.2206). Rotert Gandur - Expert agréé por la Cour de cassation TURNOVER OF SA SEBOL 1495 ACTUAL AND RECONSTRUCTION HAD THE OPENING OF THE QUICK TAKEN PLACE AT 1/1/1995 Month 1995 forecast (1994 + 5.1% _and seasonal coefficients) January February March April May June Total January/June July August September October November December Total August/December Total year 7,22 7,06 7,75 8,36 7,81 7,85 9,62 10,64 8,63 8,82 7,77 8,47 Actual Turnover Gap Turnover if opening of Quick on 1/1/95 Turnover excl. tax percentage Coefficient Amount -2,11 - 14,35 0,7794 0,7794 0,7794 0,7794 0,7794 0,7794 0,9100 1,0000 1,0000 1,0000 1,000 #| = |xll -24,17 -13,06 -22,06 -23,75 Companies Sebol, B et O el Les Pins, localcires-gérants de la sociélé McDonald's France Consultation of 4 February 1998 The table on the following page shows the loss of turnover attributable to the opening of Antibes Nord. The method used to calculate the influence of the opening of the Quick has been retained. For the sake of consistency, I first took as a basis the turnover of 1995 as it can be estimated on the assumption that the Quick opened on 1 January 1995. To take account of the “mad cow” phenomenon, I applied to this turnover a decrease of 9.30%, the decrease noted at the McDonald's restaurants of the Alpes-Maritimes and the Var: in these circumstances, turnover for 1996 should have amounted to 19.6 million francs, since that of 1995 had been 24.6 million francs. From the seasonal coefficients, I calculated the plausible monthly turnover for 1996 and compared it with the actual figures. Until the end of September 1996, the actual figures are 2.60% higher than the expected figures. Over this period, the actual figures were therefore close to the expected turnover, which validates the projections. After the opening of the McDonald's of Antibes Nord, in the fourth quarter of 1996, monthly sales are 34.13% below the expected figures, showing a very sharp deterioration in activity, which can be estimated at 36.73% (34.13 + 2.60). To assess the turnover shortfall thus noted, I applied to the expected turnover for the fourth quarter of 1996 the coefficient of 1.026 to take account of the gap relative to the forecasts over the first nine months. By difference with the actual figure for the fourth quarter, I determined the loss of turnover resulting from the opening of the McDonald's of Antibes Nord, i.e. 1,803,610 francs for 1996. Again for the sake of comparability, and in order to calculate the consequences of the openings of the McDonald's Antibes Ouest and Vallauris, I calculated in the same table what the monthly turnover for 1996 would have been had the opening of Antibes Nord occurred on 1 January 1996, that is to say by applying to the data noted from January to September 1996 a coefficient of 0.6327 (1 - 0.3673). Robert Gandur - Expert agréé par'c Cour de cassation CHIFFRE D'AFFAIRES REFIDELA SA SEBONE 1996 PERTEDE CA DUE A L'OUVERTURE D'AMTBES NORD - RECONSTIUTION CA 1996 SI L'OUVERTURE DANTBES NORD AVAIT HEU LE 1/1/1996 Month 1976 forecast (1995) - 9.3% ... and seasonal coefficients) January February March April May June July August September Total January/September 7,06 7,75 8,36 7,81 7,85 2.085,594 10,64 8,63 14.889.496) November December Total September/December 8,82 8,47 Total year - 19.600.2121 Actual Turnover Gap Turnover excl. tax percentage Loss of turnover due to opening of Antibes Nord II = (1 x 1,026) - II "after reconstruction as if the opening of the Quick had taken place on 1 January 1995 2,60 -32,25 -34,45 =6,60 Turnover if opening of Antibes Nord on 1/1/96 Coefficient IV Amount IV = 1x IV 0,6327 0,6327 0,6327 0,6327 0,6327 0,6327 0,6327 0,6327 0,6327 1,0000 1,0000 1,0000 1,0000 -34,85 Companies Sebol, 8 et Cet Les Pins, lessee-managers of the company McDonald's France Consultation of 4 February 1998 The table on the following page shows the loss of turnover due to the opening of Antibes Nord and Ouest and of Vallauris. The previous method was retained. Actual turnover prior to these openings (January to April 1997) is 3.44% below expected turnover, calculated from the 1996 figure reconstructed as if the opening of Antibes Nord had gone back to 1 January 1996 and adjusted by a coefficient of 1.011 to take account of the change in the other restaurants of the brand in the Alpes-Maritimes and the Var. After these openings, the figures noted are 12.48% below the expected figures calculated under the same conditions. I deduce from this that the loss resulting from these openings can be estimated at 9.03% (12.48 - 3.44), without it being possible to distinguish the share attributable respectively to Antibes Ouest and to Vallauris. Sebol's loss of turnover in 1997 attributable to Antibes Nord and Ouest and to Vallauris was calculated by difference: • for the months of January 1997 to September 1997, between the 1997 turnover and that expected, calculated from the actual 1996 figure adjusted by a coefficient of 1.011 (increase noted in the restaurants of the Alpes-Maritimes and the Var in 1997) then by a coefficient of 0.9656 (gap between forecasts and actual results noted before the openings of Antibes Ouest and Vallauris, January to April 1997), the 1996 figures obviously not having been affected by the opening of Antibes Nord: - for the months of October to December 1997, between the actual 1997 figures and the expected figures, calculated from the actual 1995 figure to which were applied: . a coefficient of 0.907 (decrease noted in the restaurants of the Alpes- Maritimes and the Var in 1996). . a coefficient of 1.026 (gap between forecasts and actual results noted before the opening of Antibes Nord). • a coefficient of 1.011 (increase noted in the restaurants of the Alpes-Maritimes and the Var in 1997). . a coefficient of 0.9656 (gap between forecasts and actual results noted before the opening of Antibes Ouest and Vallauris). Roberi Ganda - Expert agrés par !a Cour de cossatior. CHIFFRE D'AFFAIRES REEL DE LASA STRON DELOYA BELVALUATION DELA PERIE DE CA DUF AUX OUVERTURES EN ANTBES NORD ET OUEST FT VALLAURIS Month 1597 forecast (1993), 1.1 % _ and seasonal coefficients) Actual Turnover Gap Turnover excl. tax percentage Loss of turnover due to openings of Antibes Nord and Ouest and Vallauris before 1/10: (Actual 1996 x 0,9656) -11 after 1/10: (Actual 1995 x 0,907 x 1.026 x 0.9656) - II January 7,22 February March 7,75 April 8,36 Total January/April May 33R# -3,44 MEDAREOOTO June July August 9,62 September October November Spacea December 8,47 •S: 329207 Total May/December Total January/December _ 12910944 100,00 _ 11654.693 9,03 after adjustment as if the opening of McDonald's Antibes Nord had taken place on 1 January 1996 Companies Sebol, Bel O et Les Pins, iocalaires-gérants de la société MeDonaia's France Consultation of 4 February 1998 In these circumstances, the loss of turnover of the company Sebol due to the openings of Antibes Nord and Ouest and of Vallauris can be estimated at 7,619,056 francs for 1997. The change in the moving average in 1996 and 1997 as it would have appeared in the absence of the losses of turnover due to these openings is shown in the graph on page 11. 2.- The impact on results The impact on companies' results of a loss of turnover is calculated in the conventional way by the loss of margin on variable costs that it entails. I therefore looked, from the operating accounts, at which costs were fixed and variable. The company Sebol draws up accounts according to the French accounting nomenclature but also according to a nomenclature specific to McDonald's. The latter provides a form that allows each manager to calculate his break-even point from a breakdown of the items of this nomenclature into fixed and variable costs. The comparative change in annual turnover and the break-even point can be shown graphically as follows: COMPARATIVE CHANGE IN ANNUAL TURNOVER AND BREAK-EVEN POINT OF SEBOL -crites d'attaros anniels inels| mais novert moi ton on ser e YEARS Robert Gandur - Expert agréé parla Cour de cassation Companies Sebol, B et O et Les Pins, locataires géranla de la société McDonald's France Consullation du 4 février 1998 Until 1996, that is even after the opening of the Quick, the break-even point was below turnover, that is to say the company remained profitable. In 1997 - despite the savings in fixed costs which enabled Sebol to lower the break-even point and thus to limit losses - turnover became lower than the break-even point, making losses unavoidable. The operating accounts drawn up according to this nomenclature and the calculation of the annual break-even point (turnover making it possible to balance operations) are set out in the table on the following page. As regards variable costs, the rate is seen to be stable between 1992 and 1996 and an apparent decrease as a percentage of turnover of 8 points between 1996 (69.09%) and 1997 (61.12%). However, account must be taken of the fact that turnover became insufficient in 1997 for the base fee to be calculated according to its rate (12%) and the minimum fee became due. If the base fee is neutralised, variable costs represent 56.63% of turnover in 1996 against 61.12% in 1997. This increase has several explanations: • the cleaning of the premises and equipment on closing the store, carried out until 1996 by an outside company and which, recorded under external services, was considered a fixed cost, was carried out in 1997 by in-house staff (crew labour), a variable cost. I estimate this impact at 1% of turnover. - however, crew labour, essentially variable, includes a fixed portion, notably the staff present at the opening and closing of the restaurant and during off-peak hours, which is independent of turnover. In addition, certain social constraints (the use of staff for a minimum of two hours) contribute to a certain fixity of the cost of crew labour. I therefore estimate that, despite the margin rate on variable costs actually observed in 1997, the margin on variable costs would have amounted to 30% in 1997 - the rate noted rate recorded in 1996 reduced by 1 point to take account of the changes in the cleaning of the premises mentioned above - if the company Sebol had not suffered the loss of turnover due to the openings of Antibes Nord and Ouest and of Vallauris. Robert Gandur - Expert agréé parla Cour de cassalion Sales of food products Non-food sales Cost of food Packaging Cost of non-food products Crew labour Advertising Ir:lormer Operating supplies Dlvore contãtables Standard fee (if higher than the minimum) Service fee ¡Total variable costs Margin on variable costs Salaries of managers and social charges Travel expenses tromation locule Servlcas sylérieurs Maintenance and repairs Electricity, gas, telephone, water Office supplies Cash shortages Minimum fee Accounting and legal fees lAssurance liores les ou mane volues sur cessions doclil tocxllisements at provlilons Financial expenses Financial income Various non-controllable income and expenses alake du localaire gérarl Other expenses de bev Total fixed costs Net result before tax Corporation tax Paular na conflit avan impor Pool morl onnuel 2i 248 233 15 <49 +05l (E3n 5391 (855cl (2010) (35 546) ¡|+ 118] (121si0] 12 495 446] ¡1 027 s77] 1S 355 2470 5B92 588 (908 694) 155 207) (441 175) (27y 529) (451 275) (932 195) 124 514] 119 439] {19 ×86| | (355.255) 100,00 2I B39 274 45/ 29L (25,59) [5 736 777) 1297) (341 490) (2.2c) (5P6 121) (3 822 937) 14,351 (987 974) [49 953) (127 163) (80 057) $11.741 12 6as 463) 118022 6051 6 1sa 035 97 yri T00.00 [25,7 4) 12.57j [2.60) (17,15) (4.43] 10 2?1 10 57| 170,961 (N137280 (46 082] [346 3551 (2/5 310] (460 281) (3ED 194) (10 955) (le 505) (55 189] (46 742) 1482738) 1570 000) (333 339) (94 560) 19001 1232 26+) 1419 +21) 15 192 1079 Tois 340 _. 3.10 ANALYTICAL RESULTS SA SEBOL FROM 1990 TO 1997 97 6 | 2,39 16 355 379) (700 916) (1 076945] {89 348] (117 193] (103 242ł /1 233 $091 125.00) 12.76| 12,41) (16 13l i 14.24) 10.27| (0.46) (11.88) (1.85) (65,60) (6694970] 1708 802} {625 7861 (4 104937) [1 28 548) (50 247) (149 292) [14751) 13 282 1901 [L 142 531] 16 713 051] 11655B34 130 455| 1422 9B8| 1289 013] 137 1 183| 36589| (1 492 348) (4431 1) {564213) (327 268) (372 430) (365 840) {11 809] {16 1309 (106 263) (58 8001 {523 38:31 (584 000) < 931 (e77 062l (217 217) (429 0s3) 111,251 ¡Öäü78j (49 876] 1107 900) (seD 735) (859 074) (46B 872] •' 7116 0467 1 590 208 | 6,26 98.0В 1,92 100,00 (25.1 4] [2.59] (2.26] (16,06) {4.41] 10.23ł 10,05l (12,01) {1.90) 166.24) 31,7% 123, 149 8,62) 8,62 78 965 84| 1,75 70b, 06 393 051 ( - 21E38 042 98,40 1,50 100,00 {8 571654) (670 36 4) | (623743)! (4406932) [1 2104101 (58 2/81 {1 46 000) 13 230 Dzel (1 292 452) (24.37) (2.49) (2,31) (16,34] 14.49| (0,22) (0.54) (0.27| 111,781 14,79) {6 150 454) (678 428) (558 882) [4 140 510) (1 074 546] 192530] {121 483} (2 999 l65) ті 10 60 (25,04 (2,75) (2,27) (16,80) (1.35) (0,38) {0 49} 10,24) (12.17] 14.94} (69,44) 32,20 7 52B 661 (1 767 851) (9 176) {454943) [372 290) (389 570} (354 301) (12 $16] [9 878] 10в зі7. (517a1) 1800 000) (84 859) (153 800) 5 (933 426) 3 1167 $85l 16190171 83 (6 700 932) (24,63) (7 252 215] (13 248) (468 551) {473 517] [470 761} (358 022) [13 184) (57 858) (51 296) (641 494) (47 102) (600 0001 157 814) (146 6211 1125-357) 1448 479] (25.05) 5,50 0,00 mail 20B09 739 1 356 306) 5,50 20) 200 097 F. T0 305 129 (507 8031 [363 99)| (2 696 247) {810 226] (74 639) (1 10 987) (87 182) (2 285 242) (091460) (5 3621 (286 467) 1526 474) (407 328) (382950] 17 855) (234) (82 086) (19 1421 (439 143) (57 1] (614 624) (51 554) (113 392) (039058) 1174 109) (568 019) (233 049) (25.22) (2,77] (15,82) (4.43] 10,61} 10 48) 112 48) (4.89) (69,09) 1,20 (1.28) 1,92 T1 654 693 (3 077 6531 (348 754] || 46 7121 17 303 7491 1507 519] (48 437) 188 523] {28 271] 98,66 1,34 100,00 [26,11) (2,99) (1.26] 115.77] (1,35] 10,12] (G,76) 10,24) (5739924 (7 123 610) (4.92) 38,08 [46 | 335) 122 231] (204 564) (343 3301 (327 037) i/ 7161 {9 1231 (| 826 272) 1165 759] (43 525} 141& 462] 1616 000) 1133 667) [3B5 712) (92 242) 1292 593) 145,761 11174778) 110,331 (1 174778) 110.001 Companies sebol. B et O el Les Pins lessee-managers of the company Mcdondia's france Consultation of 4 February 1978 conomie de charges fixes totale par rapport à 1995 conomie attribuabie à l'ouverture du Quick léconomie réalisée en 1995 pal rapport à 1984) Saving attributable to the opening of Antibes Nord and Ouest and of Vallauris The impact on the net result before tax of the company Sebol of the openings of Antibes Nord and Ouest and Vallauris can be estimated at: Loss of margin on variable costs Saving in fixed costs Impact on net result before corporation tax 557 000 3077 000 571 000 1 764 000 0|1313 000 D. ASSESSMENT OF THE IMPACT OF THE OPENING OF THE ANTIBES OUEST AND VALLAURIS RESTAURANTS ON THE COMPANY B ET O OPERATING THE ANTIBES NORD RESTAURANT 1.- The impact on turnover To carry out this assessment, I have shown in the graph on the following page the change in the turnover of B et O and the corresponding six-month moving average. Given the small number of observations resulting from the recent opening of Antibes Nord, the presentation does not make it possible to discern graphically the influence of the openings of Antibes Ouest and of Vallauris on the turnover of B et O. Roberi Concur - Expert agréé par la Cour de cassation EVOLUTION DU CHIFFRE D'AFFAIKES MENSUEL DU MODONALD'S D'ANTIBES NORD (B ET O) EN 1996 ET 1997 -CA mensuels Hl en F. Moyenne mobile semestrielle des CA mensuels HT en F. A 1.300.000 M 1.200.000 € 1.100.000 Opening of McDonald's Antibes Ouest and Vallauris - de 0Ct-96 10v-96 déc-26 jonv:s7 tévr-97 mars-27 avr.97 moi-97 MONTH juin-87 juil-97 sept-97 0ct97 nov-47 déc-97 Companies Sebol, B et O et Les Pins, lessee-managers of the company McDonald's France Consultation of 4 February 1998 I then looked to see whether an impact could be detected in the monthly turnover figures themselves. To that end, I set out in the table on page 28 the monthly turnover achieved between October 1996 and December 1997. I then calculated the resulting annual turnover, before and after the openings of Antibes Ouest and Vallauris, using the seasonal coefficients adopted for the company Sebol. It results that before the said openings, annual turnover was trending towards 14.8 million francs, whereas afterwards it was trending only towards 12.5 million francs, i.e. a fall of 15.52%. The loss of turnover suffered by B et O as a result of the opening of Antibes Ouest and Vallauris can therefore be estimated at 1,350,000 francs (turnover achieved from May to December 1997: 8,702,387 multiplied by 15.52%). B.- Impact on the result The impact on the result of this loss of turnover can be estimated by the corresponding loss of margin on variable costs. The breakdown of costs into fixed costs and variable costs is shown in the table on page 29. As the margin on variable costs amounted to 23.34% in 1997, the impact on the result can be estimated at 315,000 francs. Given the low relative importance of the loss of turnover (10%), I estimate that no saving in fixed costs was achieved. Robert Gandur-Exper agréé par la Cour de cassation TURNOVER OF ANTIBES NORD (B ET O) Month Actual Seasonal coefficient] Annual trend III = (1 x 100)/I1 October 96 November 96 December 96 January 97 February 97 March 97 April 97 Average October 1996/April 1997 8,82 8,47 7,22 8,36 May 97. 1.063.745 June 97, July 97 Goût 97 September 97 October 97 November 97 December 97, Average May 1997/December 1997 7,81 7,85 9,62 10,64 8,82 7,77 8,47 Gap in % -15,52 Sales of food products ¡Non-food sales total sales ¡Cost of food Packaging Cost of non-food products Crew labour Advertising unitemes Operating supplies Various controllable items Standard fee Service fee Total variable costs Margin on variable costs Salaries of managers and social charges Travel expenses ¡Promerien occle External services Maintenance and repairs Electricity, gas, telephone, water ¿Office supplies ¡Cash shortages Minimum fee Accounting and legal fees Taxes lAmortissements et crovisions Financial expenses Financial income Various non-controllable income and expenses ¡Salary of the lessee-manager AuTres Cégerges Derensas de curecu ¡Total fixed costs ¡Net result before tax Corporation tax Net result Net result before tax Ecar Annual break-even point ANALYTICAL RESULTS OF SARL B ET O FOR 1996 AND 1997 1996/3 months! F. 98,49 1,5% [852.099) {102.956) (50.509) {908.491) (150.080) (3.360} (35.772) (28.439) (25,14) (3.04) (1,49] (26,81) (4,43) (0.10) (1.06) (0.84) (166.801) | (2.298.507) 14,92) (67.33] 32,17 (238.632) (1.394) (88.462 (135,443) (70.2 8) {119.124) 18.564) (1.554] (682.557) (29.291) 12'.000) (25.087) (180.000) (30.689) (121.799)1 "21.903)1) 11.378.767] 753,44) (788.437)1 (23.27) 123.27) 1766.;41) (22:2961 F. 13.283.401( (3.409.366) (403.459) [165.019} (2.683.479) (592.776) (35.483) (78.272) (13.5:9) (2.297.724) (663.962) (10.343.059) (944.760) (50.304) (237.369) (4C2. 40) (193.525) (296.537 (8.541 (87.450) (55.373) (2:4.532) (659.000] (201.814} (4194) E 1459.878|1 14.532, ฿ (1.166.129) 100,00 (25.27) (2.99) (1,22) (19,39) (4.39) (0,26) (0.58) (C.10) (17,03) (4.92) 176,66] 23,34 737,79) (8.64) (1.166. 129]| (8.04) Companies Sebol, 8 el O et Les Pins, lessee-managers of the company McDonald's France Consultation of 4 February 1998 E. DETERMINATION OF THE RENTS AND FEES PAID TO McDONALD'S THAT CAN BE BORNE BY THE COMPANIES SEBOL, B ET O AND LES PINS To determine these rents, I drew up the forecast income statements of the three companies for 1998: they appear on the three pages that follow. The turnover figures derive from the turnover achieved in 1997. They were adjusted according to the foreseeable reductions due to the openings of Antibes Ouest and Vallauris (Sebol and B et O: the months of January to April, which in 1997 were not affected by these openings) or to bring them to a full-year basis given the seasonal coefficients of Sebol (Les Pins). The margins on variable costs are approximately those noted in 1997. The forecast fixed costs were communicated to me by Monsieur Collorafi: they are in line with those noted since April 1997. The level of rents and base fees presumed “bearable” is that which would make it possible to achieve, after repayment of the loan instalments in principal, a zero gross self-financing margin, that is to say without worsening the financial situation. These bearable rents and base fees are 736,000 francs for Sebol (against a current minimum fee of 1,800,000 francs), 1,172,000 francs for B et O (against a current minimum fee of 2,940,000 francs) and 1,034,000 francs for Les Pins (against a current minimum fee of 1,200,000 francs). I stress that these bearable rents and base fees do not make it possible to achieve a positive accounting result: if the base fees were reduced to these amounts, the results of Sebol, B et O and Les Pins would be losses of 484,000 francs (Sebol), 240,000 (B et O) and 100,000 francs (Les Pins). To obtain a zero accounting result, the rents and base fees would have to be reduced respectively to 252,000, 794,000 and 934,000 francs. Robert Gandur - Expert agréé par la Cour de cassation FORECAST RESULT 1998 OF ANTIBES (SEBOL) Sales Cost of food Packaging Cost of non-food products Crew labour ¡Operating supplies Service fee Various controllable items Total variable costs Margin on variable costs Salaries of managers and social charges Travel expenses Local promotion External services Maintenance and repairs Electricity, gas, telephone, water Office supplies LCash shortages Minimum fee Accounting and legal fees ¡Insurance Taxes Depreciation and provisions ¡Financial expenses ¡Various non-controllable income and expenses IScicire du locataire-gérant Other expenses Office expenses ¡Total fixed costs ¡Net result before tax inoội mir es sociétés Net result Annual break-even point Gross self-financing margin Loan repayment (principal) Financially bearable rent F. (2.67C.000) (300,000) (140,000) (2.100.000) (450.000) (30.000) (80.000) (512.000) (30.000] (6.312.000) (504.000) (24,000) {132.CC0! [252.000] (36C.0C0} {336.0CO} (12.0C0} i12.CCO} (:.8OC.OCO) (216.000) (48.000} (370.000} (684.0C0} (81.000} : 44.OGO} (360.0CC) (24.0CO) {:14.00O) TE.475.2001 ( 548 C001| (1.S48.CC0)| i4.275.519 (864.0001 (200.000) 100,00 (2.93) (1,37) (0.29) (0,78) (5.00) 10.29) 761,64) 38,36 (53.491 (15.:2) FORECAST RESULT FOR 1998 OF ANTIBES NORD (B ET O) {Sales Cost of food Packaging Cost of non-food products Crew labour ¿Advertising Uniforms -Operating supplies ¡Service fee Various controllable items Total variable costs Margin on variable costs Salaries of managers and social charges ¡Travel expenses *Local promotion External services Maintenance and repairs Electricity, gas, telephone, water Office supplies Cash shortages ¡Accounting and legal fees Standard fee Insurance Taxes Depreciation and provisions Financial expenses Various non-controllable income and expenses Salary of the lessee-manager lAures depenses Office expenses ¡Total fixed costs Net result before tax moot sur les sociétés Net result Annual break-even point Gross self-financing margin Loan repayment (principal) Financially bearable rent F. (3.210.000] (370.000] [160.000) (2.650.000) (560.000) (30.000) (80.000) (630.000) 17.720.0001 (936.300) (48.00C) {108.0001 (408.000) (180.000) [300.0001 (12.000) [:68.000) (2.940.000) I6C: COO! (216.000) [660.000) (204.000) (432.000) (36.000) $132.00C 16.388.00011 (2.008.000)! 12.008.000) (1.348.000) (420.0001 i.:72.000 125,48) (2.94) (4.44), (0.24) (0,63) 161,275 SP3." (15,94) 1 (1594)| FORECAST RESULT 1998 CE ANTIBES OUEST (SARL LES PINS) Sales Cost of food Packaging Cost of non-food products Crew labour Uniforms Operating supplies ¡Standard fee Service fee ¿Equipment fee ¡Various controllable items Total variable costs Margin on variable costs Salaries of managers and social charges Travel expenses Local promotion External services Maintenance and repairs Electricity, gas, telephone, water Office supplies Ecans de ccisse Frais comotables et judiciaires ASSIANCE Amerissements et provididas Financial expenses ¡Various non-controllable income and expenses Salaire du loca cire gérani Other expenses Depenses de bureai TricI des calis †IYe résulter ner avent imodi F. (2.420.000) (280,000) (120.000) [2.100.000) (420.000) (28.000) (75.000) (1.395.000] (465,000) (420.000) (30.000) (7.753.000) (25.02) (3.01) (1.29) (22,58) (4.52) (0.30) (0.81) (15.00) (5.00) 14,52! 10.32) 783.37) 16,63 (348.000) (24.000) (96.000) (228.0CCj ilac.oec! (240.000) (12,000) (:44.000) (48.000) (84.000) (:0.00O) (36.000) (3:2.00C) (24.000) 196000) (2.008.000)| i46 ccc!! (4,96) Net result Annual break-even point Gross self-financing margin Financially bearable rent (4cl.0001l (361.000) (4,96) Companies Sebol, B et O et Les Pins, 'ocataires-gérants de la société McDonald's France Consultalion du 4 lévrier 1998 F. CAPITALISATION OF THE LOSSES OF GROSS SELF-FINANCING MARGIN OVER THE REMAINING NORMAL TERM OF THE AGREEMENTS You finally asked me to estimate what the cumulative losses of margin until the “normal” expiry of the agreements would represent if they were capitalised at 1 January 1998. For these calculations, I took into account the following losses of gross self-financing margin: - for Sebol, the loss of margin on variable costs, after deduction of the savings in fixed costs (estimated for 1997 at 1,313,000 francs) resulting from the openings of Antibes Nord and Ouest and of Vallauris. To this is added the additional loss of margin on variable costs that Sebol should suffer from January to April 1998, the turnover figures for January to April 1997 not having been affected by the openings, at the end of April 1997, of Antibes Ouest and Vallauris. This loss of margin is assessed at 102,000 francs, for a loss of turnover of 342,000 francs (turnover for January to April 1997 multiplied by 9.02%) applied at a margin rate on variable costs of 30%. - for B et O and Les Pins, the difference between the margin shown in the forecast documents given by McDonald's to Monsieur Collorafi at the signing of the lease-management agreements and the forecast gross self-financing margins for 1998 as calculated in the preceding paragraph. Because of the presumed permanent change in the catchment areas of the companies of Monsieur Collorafi, I considered that these losses of margin were recurring until the normal term of the lease-management agreements. For the discounting period, I used the number of years (or fractions of a year) remaining to run until the normal term of the lease-management agreements. For Les Pins, an agreement whose normal term is 28 April 2000 but which can be extended on the sole initiative of the lessee-manager until 28 April 2017, I used the number of years (or fractions of a year) remaining to run until this last date. To discount these losses, I adopted a discount rate of 8%, corresponding to the current rate of long-term government bonds (more than 10 years), i.e. 5.80% increased by a risk premium of 2.20 points. The resulting capitalisations are set out in the following table: Robert Gandur - Expert agréé pa: la Cour de cassation Sebol B et O Les Pins Loss of margin on variable costs (net of savings in fixed costs) McDonald's forecast GSM 1998 forecast GSM Gap in gross self-financing margin Number of years remaining to run until the end of the lease-management agreement Capitalisation coefficient (discount rate: 8.00%) Capitalised loss or gap in margin 9,58 6,97570077 {1 348 000) 18,75 9,97521722 (361 000) 19,33 10,20365779 Companies Seboi. B el Oet Les Pins, lessee-managers of the company McDonald's France Consultation of 4 February 1998 I remain at your disposal for any further information, and remain, Maître, yours sincerely and with my best regards. Robert Gandur Mamen Rest Doo DeLt cuv. CAISO C7/44 10/9% 06/9€ 37/9→ • Nice Jeur Médirain • Nica Masseno • N/ze Ligosllère 5 Mandeileu s Nico Froni enades 5 Nico TNL *P-pat Giasse 5 Cagnes sur Mer d Cugnes Plages & Cures Les Allées s Nice Soluya 5 Mictite $ Vallouris $43 5 Carries Moncto Total A pes Maritimes el 11007:0 Sd| E3/87 65: 10/B7. 155: 11/90| a3 Toron 33: a Garde G'ond Vor 83 Toulon La Seyna 83 Toulon Muyo: Ba La Garde Grand Ciel 502 08;56 572 04;97 83 tin y sur Mor a3 Brigrioles total Apes Marilmes, Moraco et r Ecart type EVOLUTION OF ANNUAL TURNOVER OF THE McDONALD'S RESTAURANTS OF THE ALPES-MARITIMES, MONACO AND THE VAR FROM 1992 TO 1997 Gurer Cortiss Ouverture 73/94| Ouvert avant ingt 2456974) 2257+919 7 849 075 1 1 121 BJ2 (5.73! {2.031 [4,11l (5,37) 2+ 107 861 2,74 4 D0. 0,08 8,11 4,79 6,20 199฿ Cuverture 91/55 Ourotavori I925 Cuverture 95i94 17 20J 22 06ó 509 17,62) (23.46] (17.03] 16 25} (15.64) (10.72) 22 55¢ 384 Man 116 888 214 9 174 16e 25 :35c 559 23 491 B13 (4 201 193 813 256 1,03 193 645 367 (8,941 E, 63 15.43/ 923302 13 264 $27 11 566$27 30 86I 116 3,21 12,0F 5,14 21 930 80€ 51$48263| 315885 306/ 5.11 16.85k (3.83) 7,79) (3,85)) +2,9 4}| 7.98j S8 021125 216 212 501 0631l 2736+178 307430855 19.341 3,33 688 $39 27 979 d69 407÷ 723 Opened before 1996 Opening 93/9? (9,c8} 8,77 10,27) (4,72) (0,57) 118.29] 14,28 2F 695 392 219 242 745 23 06T 704 339 193 696 (1.08) 5,18 1,47 8,38 7,94 5,84 $ 439 133 47 385 ÷54 6 478 $57 86175316) ANNEX 1