BRUSSELS, Belgium, May 6, 2004 - Delhaize Group (Euronext Brussels:DELB) (NYSE:DEG):
-- Strong organic sales growth of 3.8%
-- Comparable store sales growth of 2.5% in the United States
and 3.1% in Belgium
-- Earnings before goodwill and exceptionals +2.2% at identical
exchange rates
-- Continued strong free cash flow and net debt reduction
-- Confirmation of full year guidance
-- Successful placement of EUR 300 million convertible bond in
April
Results Delhaize America: http://hugin.info/133961/R/944406/132616.pdf
Full press release in pdf-version: http://hugin.info/133961/R/944405/132617.pdf
Delhaize Group (Euronext Brussels:DELB) (NYSE:DEG), the Belgian international food retailer, announced today that in the first quarter of 2004 sales amounted to EUR 4.4 billion, 6.0% lower compared to prior year due to a 14.1% weaker U.S. dollar. Strong organic sales growth of 3.8%, excluding currency movements, acquisitions and divestitures, was supported by excellent sales momentum in the United States and Belgium.
Earnings before goodwill amortization and exceptionals amounted to EUR 89.8 million (EUR 0.97 per share), 8.8% lower year-over-year due to the weaker U.S. dollar. Operating margin was lower versus a particularly strong quarter a year ago. Previously announced exceptional charges resulted in a net loss for the Group of EUR -8.0 million.
Delhaize Group realized EUR 185.1 million free cash flow in the first quarter of 2004, and its net debt decreased from EUR 3.0 billion at the end of 2003 to EUR 2.9 billion at the end of March 2004.
"We are pleased with our continued strong sales performance in the first quarter of 2004," said Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group. "The focus of our companies on sustainable sales growth initiatives resulted in comparable store sales growth of 2.5% in the U.S. and 3.1% in Belgium, continuing the positive trend that began in 2003."
Mr. Beckers continued: "The operating margin decreased compared with last year because of the comparison with a very strong first quarter in 2003, but the gross margin improved versus the fourth quarter of 2003. Better price competitiveness and initiatives to improve sales are building sustainable growth. Measures like the implementation of our Hannaford inventory control system at Food Lion and Kash n' Karry will enable us to improve margins. Our continued progress in the first quarter gives us confidence in our ability to achieve the full year goals we have communicated."
INCOME STATEMENT
In the first quarter of 2004, Delhaize Group posted an organic sales growth of 3.8%. Total sales decreased by 6.0% to EUR 4.4 billion due to the weakening of the U.S. dollar by 14.1% against the euro. At identical exchange rates, sales would have increased by 5.1%.
Sales were positively impacted by:
-- the good sales momentum in the four U.S. operating companies,
resulting in a comparable store sales growth of 2.5% and
total sales growth of 5.0% in the U.S. operations
-- the continued strong sales at Delhaize Group's other operations,
with excellent comparable store sales growth of 3.1% and
total sales growth of 8.1% in Belgium;
-- ongoing store openings and the acquisition of 43 Harveys
supermarkets consolidated from October 26, 2003, resulting
in a sales network of 2,534 stores at the end of March 2004,
an increase of 48 stores compared to the previous year.
Sales were negatively impacted by:
-- the deconsolidation of Shop N Save (Singapore) from October
1, 2003 due to the sale of this business; and
-- the closing of 34 Kash n' Karry stores in Florida in
January-February 2004.
The gross margin decreased to 25.8% of sales, a reduction by 32 basis points versus the first quarter of 2003, the best gross margin quarter in 2003, while it improved by 58 basis points versus the fourth quarter of 2003. The year-over-year decrease was attributable to more competitive prices at Food Lion, Delhaize Belgium and Alfa-Beta, higher than expected inventory shrink at Food Lion and the depreciation of the U.S. dollar reducing the contribution of the higher gross margin U.S. business.
Operating expenses (excluding depreciation and amortization) increased slightly from 18.2% to 18.3% of sales due to additional expenses at Hannaford associated with advertising and fuel costs and at Kash n' Karry related to the repositioning of the company for the launch of Sweetbay Supermarket on Florida's west coast.
Delhaize Group posted an operating profit of EUR 185.0 million, a decrease of 11.7% compared to prior year. At identical exchange rates, operating profit would have increased by 0.8%.
Net financial expense declined to EUR 82.6 million from EUR 93.4 million last year, primarily due to the weaker U.S. dollar. Exceptional pre-tax expenses of EUR 106.0 million were recorded in the first quarter of 2004. The after-tax exceptional expense amounted to EUR 67.4 million or USD 84.2 million, lower than the estimate of USD 88 million announced in January. Because these exceptional expenses were fully tax deductible, income taxes declined substantially.
Delhaize Group posted a net loss of EUR -8.0 million due to the exceptional charges. Per share, the net loss was EUR -0.09 in the first quarter of 2004 compared to net earnings of EUR 0.50 per share in 2003. In the first quarter of 2004, earnings before goodwill and exceptionals decreased by 8.8%. Per share, earnings before goodwill and exceptionals were EUR 0.97 (EUR 1.07 in 2003). At identical exchange rates, earnings before goodwill and exceptionals would have increased by 2.2%.
CASH FLOW STATEMENT AND BALANCE SHEET
In the first quarter of 2004, Delhaize Group generated free cash flow of EUR 185.1 million. Capital expenditures were EUR 74.2 million compared to EUR 70.5 million in the first quarter of 2003, a slight increase despite the weakening of the U.S. dollar due to more store openings.
Delhaize Group's net debt amounted to EUR 2.9 billion at the end of March 2004, a decrease of EUR 119.5 million compared to EUR 3.0 billion at the end of 2003. The net debt to equity ratio was reduced to 85.2% at the end of March 2004 compared to 89.8% at the end of 2003 and 99.2% at the end of the first quarter of 2003.
In April 2004, Delhaize Group successfully placed EUR 300 million convertible bonds due 2009 at attractive conditions reflecting the positive market reaction to the transaction. The coupon on the bonds is 2.75% per annum and the conversion price is EUR 57.0. Delhaize Group issued the convertible bonds to refinance its existing short-term euro denominated debt. The placement was reserved to institutional investors.
GEOGRAPHICAL OVERVIEW
-- In the first quarter of 2004, the contribution of the operations
in the United States to the sales of Delhaize Group amounted to
USD 3.9 billion (EUR 3.1 billion), an increase of 5.0% over 2003
in local currency. Comparable store sales increased by 2.5%,
continuing the positive sales momentum of the second half of
2003. The sales trend continued to be strong at all U.S.
operating companies.
In the first quarter of 2004, Delhaize Group opened 4 new stores in the United States and closed 35 stores including 34 Kash n' Karry stores. Five Food Lion stores were closed and reopened under the Harveys name. There was a net decrease of 31 stores to a total of 1,484 stores in the U.S.
In the first quarter of 2004, Delhaize U.S.'s operating margin decreased to 4.7% of sales from 5.2% in the first quarter of 2003, when the operating margin benefited from cost savings at Food Lion but did not yet reflect lower prices instituted from the second quarter of 2003 onward. The operating profit of Delhaize America decreased by 4.1% to USD 182.4 million (EUR 146.0 million).
During the first quarter of 2004, operating expenses (excluding depreciation and amortization) increased slightly in the U.S. due to additional costs at Hannaford associated with advertising and fuel costs and at Kash n' Karry related to the repositioning of the company for the launch of Sweetbay Supermarket. Food Lion's expenses were further reduced as a percentage of sales due to a disciplined focus on spending throughout the organization.
The U.S. gross margin declined due to unplanned shrink at Food Lion and initiatives in price competitiveness by Food Lion that started in the second quarter of 2003. Food Lion has currently installed its new inventory and margin system in more than 800 of its stores. This system will provide item level data and insight to support improved shrink performance throughout the remainder of the year.
In Florida, Kash n' Karry will open or remodel 20 stores in 2004, mostly in the Ft. Myers/Naples market in 2004. As part of the new strategy, Kash n' Karry will be rebranded over the coming three years to the new banner name "Sweetbay Supermarket" to communicate the changes more effectively to Florida customers.
Following the success of Food Lion's market renewal in Raleigh, a second renewal program is being executed in Charlotte, North Carolina. Food Lion also plans to open five pilot stores to test a new store concept, format and brand name. The pilot stores will be named "Bloom, A Food Lion Market", a new brand under the Food Lion banner. Bloom stores will be supermarkets with an extensive focus on convenience, designed to provide a simple, uncomplicated and hassle-free shopping experience. As its "Thought for Food" tagline suggests, Bloom will appeal to customers with a focus on shopping solutions, value-adding services, home meal replacement, easy-to-shop store lay-out and technology features that expedite the shopping experience to bring full meaning to the broad term "convenience". The pilot stores are the result of the work of a cross-functional team from around the Group that developed this new store concept based on comprehensive consumer research.
-- In the first quarter of 2004, Delhaize Belgium sales grew by
8.1% due to the year-over-year expansion of the network by 23
stores to a total of 730, comparable store sales growth of
3.1% and the benefit of one extra trading day. The average
sales basket grew further due to the success of commercial
initiatives, the improvement of prices and the emphasis on
continued renewal of the store concept. The market share of
Delhaize Belgium continued to increase.
Despite a more competitive price position during the first quarter of 2004, the operating margin of Delhaize Belgium grew to 4.5% (4.2% in the first quarter of 2003) due to the strong sales momentum, the improved sales mix and disciplined cost management. The strong sales and operating margin resulted in an increase of the operating profit at Delhaize Belgium by 16.0% to EUR 42.0 million.
-- In the first quarter of 2004, sales in the Southern and Central
European operations of Delhaize Group (Greece, Czech Republic,
Slovakia and Romania) grew 1.2% to EUR 293.8 million. Alfa-Beta
(Greece) continued to increase its market share in a weak
quarter for the Greek food retail sector. Its operating margin
increased as a result of cost management. Delvita sales
remained under pressure, but sales trends improved versus
previous periods; however, the operating margin declined.
Operating profit of the Southern and Central European operations
of Delhaize Group decreased by EUR 300 thousand to EUR 2.3
million.
-- In the first quarter of 2004, the operations of Delhaize Group
in Asia reported sales of EUR 37.6 million, a decrease of
29.0% compared to the first quarter of 2003 due the
deconsolidation of Shop N Save from October 1, 2003 and the
depreciation of the Asian currencies against the euro. In the
first quarter of 2004, the operating margin loss of the Asian
activities of Delhaize Group improved slightly and amounted to
EUR -0.9 million.
2004 FINANCIAL OUTLOOK
On the basis of its first quarter results and its expectations for the remainder of the year, Delhaize Group confirms is full year guidance at exchange rates identical to 2003 (EUR 1 = USD 1.1312).
-- At identical exchange rates, it is expected that sales of
Delhaize Group will grow in 2004 by 2.5% to 3.5%.
-- Comparable store sales growth of the U.S. business in 2004 is
projected to be in the range of 0.5% to 1.5%. Based on the
strong sales performance in the first quarter of 2004, the
company expects U.S. comparable store sales growth to be in
the higher end of this range.
-- At identical exchange rates, Delhaize Group expects earnings
before amortization of goodwill and intangibles and
exceptional items in 2004 to grow in mid single digits.
-- At identical exchange rates and with the charge for Kash n'
Karry store closings and the rebranding of the business, the
growth of net earnings would be better in 2004 than the growth
of earnings before amortization of goodwill and intangibles
and exceptional items.
The 2004 sales and profit growth of Delhaize Group will be negatively impacted by the inclusion of a 53rd sales week in the United States in 2003. Adjusting for this 53rd week of sales in 2003, the outlook above would be 1.5 percentage points higher for growth of sales and 6.5 percentage points higher for growth in earnings before goodwill and exceptionals at identical exchange rates.
Conference Call and Webcast
The Delhaize Group management will comment on the first quarter 2004 financial results during a conference call starting May 6, 2004 at 03.00 p.m. CET. It can be attended by calling + 44 20 7019 0810 (U.K. participants) or +1 210 839 8500 (U.S. participants), 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 ten countries on three continents. At the end of March 2004, Delhaize Group's sales network consisted of 2,534 stores. In 2003, Delhaize Group posted EUR 18.8 billion (USD 21.3 billion) in sales and EUR 171.3 million (USD 193.7 million) in net earnings. Delhaize Group employs approximately 142,000 people. Delhaize Group is listed on Euronext Brussels (DELB) and the New York Stock Exchange (DEG).
REPORT OF THE STATUTORY AUDITOR
We have conducted a limited review of the interim consolidated accounts of Delhaize Group as at March 31, 2004. Our limited review consisted, for the most part, of analyzing and discussing financial information and was consequently less extensive than a review the purpose of which was to form an opinion on annual accounts. Our limited review did not reveal any significant adjustments which would be required to be made to the interim consolidated accounts as presented. -- Deloitte & Touche Reviseurs d'Entreprises, represented by Mr James Fulton.
FINANCIAL CALENDAR
-- Ordinary General Meeting May 27, 2004
-- ADR dividend record date May 28, 2004
-- Dividend for the financial year 2003 becomes payable to
owners of ordinary shares June 1, 2004
-- Dividend for the financial year 2003 becomes payable to ADR
holders June 11, 2004
-- Press release -- 2004 second quarter results August 5, 2004
-- Press release -- 2004 third quarter results November 10, 2004
DEFINITIONS
-- Adjusted EBITDA: earnings before interest, taxes,
depreciation, amortization, other income/(expense),
exceptional income/(expense) and minority interests
-- Comparable store sales: sales from the same stores,
including relocations and expansions, and adjusted for
calendar effects
-- Earnings before goodwill and exceptionals: net earnings plus
amortization of goodwill and intangibles and exceptional items,
net of taxes and minority interests
-- Earnings before goodwill and exceptionals per share: earnings
before goodwill and exceptionals divided by the weighted
average number of shares during the period
-- Free cash flow: cash flow before financing activities and
financial investments, less dividends and directors' share
of profit and less dividends paid by subsidiaries to
minority interests
-- Gross profit: sales minus cost of goods sold (excluding
shipping and handling costs, and income from suppliers for
in-store promotions and cooperative advertising)
-- Net debt: long-term financial liabilities, including current
portion and capital leases, plus short-term financial
liabilities, minus trust fundings, short-term investments
(excl. treasury shares) and cash
-- Operating expenses: salaries, miscellaneous goods and services
and other operating income/expense (excluding depreciation
and amortization of goodwill): include shipping and handling
costs and income from suppliers for in-store promotions and
cooperative advertising
-- Organic sales growth: sales growth excluding sales from
acquisitions and divestitures at identical currency exchange
rates, adjusted for a 53th sales week in the U.S.
-- Outstanding shares: the number of shares issued by the
Company, including 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
-- Working capital: inventories, long-term receivables, short-term
receivables, prepayments and accrued income, trade creditors,
liabilities for taxes, salaries and social security (except
income taxes liabilities), other liabilities and accruals and
deferred income (except accruals for interest expenses)
Adjusted EBITDA and earnings before goodwill and exceptionals are presented as additional analytical information. We do not represent adjusted EBITDA and earnings before goodwill and exceptionals as alternative measures to net earnings, which is determined in accordance with Belgian GAAP. Adjusted EBITDA and earnings before goodwill and exceptionals as reported by Delhaize Group might differ from similarly titled measures by other companies.
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.
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 statements are based on Delhaize Group's current expectations. Delhaize Group's actual results could differ materially from those stated or implied in such forward-looking statements. 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, 2002 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/944406/132616.pdf
Full press release in pdf-version: http://hugin.info/133961/R/944405/132617.pdf