BRUSSELS, Belgium, Nov. 10, 2005 (PRIMEZONE) -- Delhaize Group:
Third Quarter 2005 Results
-- Accelerating sales growth of 5.1% -- Improved operating profit trend due to better sales -- Net profit of EUR 89.7 million
Full Year 2005 Guidance
-- Confirmation of sales and net earnings guidance -- Operating profit guidance of 2 to 4% growth
Results Delhaize America: http://hugin.info/133961/R/1020421/160755.pdf
Full press release in pdf-version: http://hugin.info/133961/R/1020420/160756.pdf
CEO Comments
"In the third quarter, we have seen that our initiatives to further differentiate our store concepts and improve our execution have resulted in accelerated sales and earnings momentum compared to the second quarter of 2005, particularly at Food Lion, our largest banner," said Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group. "However, expenses related to long-term strategic initiatives such as the Victory and Sweetbay conversions and higher energy price, continued to impact negatively our operating margin, and the sales performance in Belgium remained weak due to soft consumer spending."
"In spite of continuing difficult market conditions in Belgium and higher energy prices, we believe operating profit will increase by 2 to 4% in 2005. Further, we confirm our sales and net earnings guidance of respectively 3.5 to 4.5% growth and 15 to 20% growth in 2005," concluded Mr. Beckers.
INCOME STATEMENT
In the third quarter of 2005, net sales and other revenues of Delhaize Group increased by 5.1% to EUR 4.7 billion. Organic sales growth amounted to 2.4%, and net sales and other revenues increased at identical exchange rates by 5.0% due to:
-- the 5.1% increase of U.S. sales, supported by the stronger sales
momentum at Food Lion and the acquisition of Victory in New
England. Comparable store sales grew by 1.6% for the U.S.
operations, a strong improvement compared with 0.2% in the second
quarter of 2005;
-- the 5.0% increase of the Belgian sales, including the positive impact
of the acquisition of Cash Fresh.
Delhaize Group ended the third quarter of 2005 with a sales network of 2,629 stores compared to 2,614 stores at the end of June 2005.
The gross margin increased to 25.3% of net sales and other revenues (compared to 25.0% in the third quarter of 2004) primarily due to lower inventory shrinkage at Food Lion and margin improvements at Hannaford and Delhaize Belgium.
Selling, general and administrative expenses increased to 20.8% of net sales and other revenues (compared to 20.2% in the third quarter of 2004) primarily because of expenses related to the integration of Victory into Hannaford and the conversion of Kash n' Karry stores to Sweetbay in Florida in advance of expected sales benefits. Utility and fuel prices were higher throughout the Group, medical costs increased in the U.S., and there was a significant statutory increase in labor rates in Belgium.
Other operating expenses decreased to EUR 8.7 million, primarily due to the limited impact from hurricanes in comparison with last year, partially offset by higher store closing charges and losses on the planned disposal of fixed assets in the U.S.
The operating margin of Delhaize Group decreased by 24 basis points but remained strong at 4.7% of net sales and other revenues. The margin decrease was significantly smaller than the 70 basis point decrease encountered in the second quarter of 2005. Operating profit was even with prior year at EUR 225.0 million.
Net financial expenses were little changed at EUR 77.0 million. The effective tax rate increased from 36.3% to 38.1% due to increased state tax accruals in the U.S. and a tax assessment paid at a Dutch financial subsidiary.
Net profit from continuing operations decreased by 2.9% to EUR 91.6 million, or EUR 0.96 per basic share. The result from discontinued operations amounted to EUR -1.0 million compared to EUR -3.1 million the previous year. Discontinued operations include the Thai operations (divested since September 1, 2004), the Slovak operations (sold on June 30, 2005) and Kash n' Karry stores closed in the first quarter of 2004.
In the third quarter of 2005, net profit decreased by 1.0% to EUR 89.7 million. Per basic share, net profit was EUR 0.95 (EUR 0.98 in the third quarter of 2004) and per diluted share EUR 0.91 (EUR 0.93 in the third quarter of 2004). At identical exchange rates, net profit would have decreased by 0.6%.
CASH FLOW STATEMENT AND BALANCE SHEET
In the third quarter of 2005, net cash provided by operating activities amounted to EUR 247.5 million. Capital expenditures increased to EUR 155.6 million (EUR 136.5 million in the third quarter of 2004) primarily due to the conversion of Victory stores, the continued Sweetbay roll-out, the market renewal program at Food Lion, more store openings and a new distribution center for fresh products in Belgium. Delhaize Group generated free cash flow of EUR 117.2 million and held EUR 691.2 million cash and cash equivalents at the end of the third quarter.
The net debt to equity ratio decreased to 85.5% at the end of September 2005 compared to 90.5% at the end of 2004. Delhaize Group's net debt amounted to EUR 2.9 billion at the end of September 2005, an increase of EUR 322.6 million compared to EUR 2.6 billion at the end of 2004 primarily due to the strengthening of the U.S. dollar between the two balance sheet dates.
SEGMENT REPORTING
-- In the third quarter of 2005, the contribution of the operations in
the United States to the sales of Delhaize Group amounted to USD 4.2
billion, an increase of 5.1% over the third quarter of 2004 due to
good sales at the largest banners, store openings and the Victory
acquisition.
During the third quarter of 2005, comparable store sales increased by 1.6%, a considerable acceleration compared to the first half of 2005. Food Lion enjoyed improving sales momentum throughout the third quarter due to effective price, promotion and marketing initiatives, better execution in its stores, the successful re-launch of the Greensboro market in June and store closings by Winn-Dixie, a major competitor in the Southeast of the U.S. Hannaford and Sweetbay continued to perform well, and sales at Kash n' Karry and Harveys were weak due to the competitive activity and unfavorable comparisons to periods of greater hurricane activity in 2004 in our territories.
The gross margin improved by 11 basis points, primarily due to lower inventory shrinkage at Food Lion and margin improvements at Hannaford. Selling, general and administrative expenses increased as a percentage of sales by 45 basis points due to higher utility and fuel expenses and expenses related to the integration of Victory in Hannaford and the launch of Sweetbay. Other operating expenses decreased because of the limited impact of hurricanes compared with prior year, partially offset by losses on the planned disposal of fixed assets and closed store expenses.
The operating margin of the U.S. operations amounted to 5.4% (5.6% in 2004) of net sales and other revenues. The operating profit of the U.S. business of Delhaize Group increased by 0.4% to USD 226.2 million.
In the third quarter of 2005, Delhaize Group opened 14 new supermarkets in the U.S., including four relocated stores, and closed three stores, resulting in a net increase of seven stores. In addition, three Food Lion stores were converted to the Harvey's banner.
In June, Food Lion launched its market renewal in Greensboro, North Carolina, including 58 remodeled stores. This third market renewal had the best start since the launch of this program in 2003 with strong sales growth driven by new customers and an increase in the average sales per customer. In early October, Food Lion re-launched its second market renewal of the year, in Baltimore, Maryland. For 2006, Food Lion has identified Washington market as its next renewal. Next year, Food Lion will enter a completely new market, Greenville-Spartanburg in South Carolina.
After one year of testing and on the basis of extensive customer feedback, Food Lion has recently introduced major improvements to its Bloom stores, particularly in its fresh and specialty assortments. In September-October, Food Lion launched three test stores under the banner Bottom Dollar, a new deep discount concept combining highly competitive prices with an offer of more than 6,500 products, including many fresh products. Customer response was very positive on both initiatives. Food Lion is evaluating the use of these two banners Bloom and Bottom Dollar together with the Food Lion and Harveys banners for its different customer segments and marketplaces.
During the third quarter, Hannaford completed the integration of the 19 acquired Victory supermarkets, with nine Victory stores converted in the third quarter to the Hannaford banner. Sales were soft in the former Victory stores due to the conversion work. In October, Hannaford launched a major marketing campaign to reinforce the Hannaford brand in the Massachusetts market.
Three Kash n' Karry stores were converted to the Sweetbay Supermarket concept in the third quarter of 2005. At the end of September, 20 Sweetbay stores were in operation, and the sales results continued to be strong. Five additional stores will be converted or opened under the Sweetbay banner by the end of 2005. The Sarasota/Bradenton market is nearly converted, and the Tampa/St. Petersburg market will be fully converted in 2006.
-- Delhaize Belgium posted sales of EUR 1,001.2 million in the third
quarter of 2005, an increase of 5.0% versus 2004 due to the
contribution of Cash Fresh, acquired on May 31, 2005. During the
third quarter, comparable store sales, which are adjusted for
calendar effects, decreased by 1.8% because of weak consumer
spending, a large number of competitive openings and adjustments in
Delhaize's non-food offering. Delhaize Belgium's market share
increased during the third quarter due to the acquisition of Cash
Fresh.
The operating margin of Delhaize Belgium decreased to 4.2% of net sales and other revenues, due to weak sales, the statutory increase in labor rates and higher energy expenses. Operating profit decreased by 2.0% to EUR 42.3 million.
-- In the third quarter of 2005, sales in Greece grew 4.5% to EUR 216.0
million, supported by three new stores opened during the quarter.
The operating margin of Alfa-Beta remained stable while operating
profit slightly increased to EUR 3.1 million. In the third quarter
of 2005, Delhaize Group took advantage of an opportunity to buy
160,703 shares of Alfa-Beta, lifting its total stake in its Greek
subsidiary by 1.3 percentage point to 51.9%.
Alfa-Beta has been subject to a tax audit in Greece at Trofo and ENA for certain years before the acquisition in 2001 of these two entities by Alfa-Beta. The Company will contest the findings associated with the audit. No provision has been made at this time.
-- Sales of the Emerging Markets (Czech Republic, Romania and Indonesia)
of Delhaize Group increased by 6.4% to EUR 96.0 million due to the
good sales momentum in Romania and Indonesia. The operating profit
of the Emerging Markets of Delhaize Group amounted to EUR 0.9
million in the third quarter.
2005 FINANCIAL OUTLOOK
On the basis of our results of the first nine months of 2005 and our expectations for the remainder of the year, Delhaize Group expects the following financial results for 2005 at identical exchange rates (1 EUR = 1.2439 USD):
-- In 2005, the sales network of Delhaize Group is expected to increase
by approximately 79 stores to a total of 2,644 stores (including
the acquisition of Cash Fresh and the disposal of 11 Delvita stores
in Slovakia). The previous expectation was to end the year
with approximately 2,667 stores.
-- As indicated previously and confirmed today, it is expected that
net sales and other revenue of Delhaize Group will grow in 2005
by 3.5% to 4.5% and the comparable store sales growth of the U.S.
operations of Delhaize Group in 2005 continues to be projected
in the range of 0.5% to 1.0%.
-- Operating profit is expected to grow by 2 to 4% in 2005 in line
with market consensus. We previously announced an expectation of
growth within a mid-single digits range.
-- Net profit growth expectations have remained unchanged at the
previously announced 15% to 20% range.
This earnings outlook is based on the confidence that Delhaize Group's fourth quarter 2005 results will be supported by continued good sales at Food Lion, the positive impact of the Cash Fresh acquisition in Belgium and a better sales trend and lower expenses at the former Victory stores. The results of the last quarter of 2005 will benefit from a relatively lower base of comparison with the same period last year.
This outlook is under IFRS, to compare with the 2004 IFRS financial results indicated in the documents "Delhaize Group: Transition to IFRS -- preliminary financial information", published on May 4, 2005 and June 29, 2005 and available on Delhaize Group's website.
Conference Call and Webcast
Delhaize Group's management will comment on the third quarter results during a conference call starting November 10, 2005 at 03.00 p.m. CET / 09:00 a.m. EST. The conference call can be attended by calling + 44 (0) 20 7019 0810 (U.K.) or + 1 773 681 5870 (U.S.), with "Delhaize" as password. The conference call will also be broadcast live over the Internet at http://www.delhaizegroup.com. An on-demand replay of the web cast will be available after the conference call at http://www.delhaizegroup.com.
Delhaize Group
Delhaize Group is a Belgian food retailer present in eight countries on three continents. At the end of September 2005, Delhaize Group's sales network consisted of 2,629 stores. In 2004, Delhaize Group posted EUR 17.9 billion (USD 22.2 billion) in net sales and other revenues and EUR 299.8 million (USD 372.9 million) in net profit. At the end of 2004, Delhaize Group employed approximately 138,000 people. Delhaize Group is listed on Euronext Brussels (DELB) and the New York Stock Exchange (DEG).
This press release is available in English, French and Dutch. You can also find it on the web site http://www.delhaizegroup.com. Questions can be sent to investor@delhaizegroup.com.
FINANCIAL CALENDAR
-- Press release -- 2005 sales January 19, 2006
-- Press release -- 2005 fourth quarter and full
year results March 15, 2006
-- Press release -- 2006 first quarter results May 12, 2006
-- Ordinary general meeting of shareholders May 24, 2006
-- Press release -- 2006 second quarter results August 10, 2006
-- Press release -- 2006 third quarter results November 9, 2006
IFRS INFORMATION
This press release has been prepared on the basis of International Financial Reporting Standards (IFRS) recognition and measurement principles issued by the International Accounting Standards Board (IASB) and interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC) effective for 2005 reporting. These rules are subject to ongoing review and interpretations by the IASB and IFRIC. As a result, the Group may need to review some accounting treatments used for the purpose of this publication prior to the preparation of the first complete set of IFRS financial statements for the year ended December 31, 2005.
More information on the implications for Delhaize Group of the change in reporting standards from Belgian GAAP to IFRS was made available on May 4, 2005 and June 29, 2005, in the documents "Delhaize Group: Transition to IFRS -- preliminary financial information", to be found on Delhaize Group's website. These documents include a reconciliation of the quarterly results of 2004 from Belgian GAAP to IFRS.
REPORT OF THE STATUTORY AUDITOR
Deloitte has conducted a limited review of the interim consolidated financial information as at September 30, 2005. This limited review consisted principally of analysis, comparison and discussions of the financial information and therefore was less extensive than an audit, the purpose of which is to form an opinion on the financial statements taken as a whole. This review did not disclose any elements that would have required significant corrections in the interim consolidated financial information.
DEFINITIONS
-- Basic earnings per share: profit or loss attributable to
ordinary equity holders of the parent entity divided by the
weighted average number of shares outstanding during the period.
Basic earnings per share are calculated on profit from
continuing operations less minority interests attributable to
continuing operations, and on the group share in net profit.
-- Comparable store sales: sales from the same stores, including
relocations and expansions, and adjusted for calendar effects
-- Diluted earnings per share: is calculated by adjusting the profit
or loss attributable to ordinary equity shareholders and the
weighted average number of shares outstanding for the effects of
all dilutive potential ordinary shares, including those related
to convertible instruments, options or warrants or shares issued
upon the satisfaction of specified conditions.
-- Free cash flow: cash flow before financing activities and
financial investments
-- Net debt: non-current financial liabilities, plus current financial
liabilities and derivatives liabilities, minus derivative assets,
investments in securities, and cash and cash equivalents
-- Organic sales growth: sales growth, excluding sales from
acquisitions and divestitures, at identical currency exchange rates
-- Other operating income: primarily rental income on investment
property and gains on sale of fixed assets.
-- Outstanding shares : the number of shares issued by the Company,
excluding treasury shares
-- Weighted average number of shares: number of shares outstanding at
the beginning of the period less treasury shares, adjusted by the
number of shares cancelled, repurchased or issued during the period
multiplied by a time-weighting factor
In its financial communication, Delhaize Group uses certain non-GAAP measures. Delhaize Group does not represent these measures as alternative measures to net earnings or other financial measures determined in accordance with IFRS. These measures as reported by Delhaize Group might differ from similar titled measures by other companies. We believe that these measures are important indicators of our business and are widely used by investors, analysts and other parties. In the press release, the used non-GAAP measures are reconciled to financial measures determined in accordance with IFRS.
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Some of the statements in this press release and other written and oral statements made from time to time by Delhaize Group and its representatives are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of Securities Exchange Act of 1934, as amended, and involve a number of risks and uncertainties. These statements include, but are not limited to, statements about strategic options, future strategies and the anticipated benefits of these strategies. These forward-looking statements generally can be identified as statements that include phrases such as "guidance", "outlook", "projected", "believe", "expect", "anticipate", "intend", "plan", "foresee", "likely", "will", "should" or other similar words or phrases. Although such statements are based on current information, actual outcomes and results may differ materially from those projected depending upon a variety of factors, including, but not limited to, changes in the general economy or the markets of Delhaize Group, in consumer spending, in inflation or currency exchange rates or in legislation or regulation; competitive factors; adverse determination with respect to claims; inability to timely develop, remodel, integrate or convert stores; and supply or quality control problems with vendors. Additional risks and uncertainties that could cause actual results to differ materially from those stated or implied by such forward-looking statements are described in Delhaize Group's Annual Report on Form 20-F for the year ended December 31, 2004 and other periodic filings made by Delhaize Group and Delhaize America with the U.S. Securities and Exchange Commission, which risk factors are incorporated herein by reference. Delhaize Group and Delhaize America disclaim any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments.
Results Delhaize America: http://hugin.info/133961/R/1020421/160755.pdf
Full press release in pdf-version: http://hugin.info/133961/R/1020420/160756.pdf