BRUSSELS, Belgium, May 12, 2005 (PRIMEZONE) -- Delhaize Group (EuronextBrussels:DELB) (NYSE:DEG): First Quarter Report 2005
-- Organic sales growth of 1.5% -- Continued strong operating margin of 4.7% -- Operating profit increase by 3.8% at identical exchange rates -- Net profit of EUR 81.3 million
Results Delhaize America: http://hugin.info/133961/R/994027/150423.pdf
Full press release in pdf-version: http://hugin.info/133961/R/994016/150419.pdf
CEO Comments
"In the first quarter of 2005, Delhaize Group posted higher profit at identical exchange rate in spite of a more competitive environment in our key markets," said Pierre-Olivier Beckers, President and Chief Executive Officer. "Better margin management, particularly at Food Lion and Delhaize Belgium, allowed us to compensate for higher expenses incurred, particularly expenses related to the integration of Victory and the launch of Sweetbay Supermarket ahead of related sales benefits."
"Delhaize Group continues to be focused on sustainable growth initiatives to support our sales momentum in key markets during the remainder of the year. In the U.S., Food Lion is preparing the launch of a third market renewal in Greensboro, North Carolina, in the early summer, and the Victory integration with Hannaford is proceeding according to plan. The reactions of customers to the Sweetbay launch are exceeding our expectations. In Belgium, we plan to complete the Cash Fresh acquisition in the second quarter pending the decision of the competition authorities," concluded Pierre-Olivier Beckers.
Transition to IFRS
These are the first quarterly financial results of Delhaize Group reported under the recognition and measurement principles of International Financial Reporting Standards (IFRS). More information on the implications of the change in reporting standards from Belgian GAAP to IFRS was made available on May 4, 2005, in the document "Delhaize Group: Transition to IFRS -- preliminary financial information", to be found on Delhaize Group's website. This document includes a reconciliation of the first quarter results of 2004 from Belgian GAAP to IFRS.
In the context of the change to IFRS reporting and to align its reporting to its operational structure, Delhaize Group has changed its segment reporting. Reportable segments include the United States, Belgium, Greece and Emerging Markets (Czech Republic, Romania and Indonesia). Delhaize Group has only one business segment, the operation of retail food supermarkets.
INCOME STATEMENT
In the first quarter of 2005, Delhaize Group posted organic sales growth of 1.5%. Net sales and other revenues decreased by 0.2% to EUR 4.3 billion, impacted by the weakening of the U.S. dollar by 4.7% versus the euro. At identical exchange rates, net sales and other revenues increased by 3.1% due to:
-- the 4.3% increase of U.S. sales, supported by the integration of
Victory and comparable store sales growth of 0.5%;
-- the 0.6% lower Belgian sales because of two selling days less.
Delhaize Belgium's comparable store sales growth was 2.0% adjusted for the calendar effects.
Delhaize Group ended the first quarter of 2005 with a sales network of 2,560 stores compared to 2,554 stores at the end of 2004. Major changes in the store network since the beginning of 2004 were:
-- the acquisition of 19 Victory supermarkets consolidated from
November 26, 2004;
-- the closing of 34 Kash n' Karry stores in the first quarter of 2004;
-- the divestiture of Food Lion Thailand in the third quarter of 2004;
and
-- the planned divestiture of 11 Delvita stores in Slovakia.
The gross margin increased to 25.3% of net sales and other revenues (24.4% in the first quarter of 2004) primarily due to better inventory results at Food Lion and Delhaize Belgium. Selling, general and administrative expenses increased to 20.9% of net sales and other revenues (20.0% in the first quarter of 2004) because of higher energy prices, higher labour rates in Belgium and expenses related to the integration of Victory and the launch of Sweetbay in advance of expected sales benefits. Other operating expenses grew to EUR 5.4 million, primarily due to a non-recurrent provision for a legal matter at Alfa-Beta.
The operating margin of Delhaize Group remained stable at 4.7% of net sales and other revenues, resulting in an increase of operating profit by 3.8% at identical exchange rates. Net financial expenses decreased by 5.4% to EUR 70.3 million while the effective tax rate increased from 35.6% to 38.2% primarily due to increased provisions for income taxes in the U.S. and the impact of the non-deductible provision at Alfa-Beta.
Because of the weaker U.S. dollar, net profit from continuing operations decreased by 1.1% to EUR 83.0 million, or EUR 0.89 per basic share. At identical exchange rates, net profit from continuing operations would have increased by 2.2%.
The result from discontinued operations amounted to EUR -2.3 million compared to EUR -43.8 million the previous year. Discontinued operations include 34 Kash n' Karry stores closed in Florida in the first quarter of 2004, the loss-making Thai operations (divested in the third quarter of 2004) and the Slovak operations (pending sale).
As a result, in the first quarter of 2005, net profit increased by 106.2% to EUR 81.3 million, or 1.9% of net sales and other revenues. Per basic share, net profit was EUR 0.87 (EUR 0.43 in the first quarter of 2004). At identical exchange rates, net profit would have increased by 113.2%.
CASH FLOW STATEMENT AND BALANCE SHEET
In the first quarter of 2005, net cash provided by operating activities amounted to EUR 168.3 million. Capital expenditures increased to EUR 94.5 million compared to EUR 74.3 million in the first quarter of 2004 due to more store remodelings in the U.S. and the construction of a new distribution center in Belgium. Delhaize Group generated free cash flow of EUR 77.0 million and held EUR 770.8 million cash and cash equivalents at the end of the first quarter.
Delhaize Group's net debt amounted to EUR 2.7 billion at the end of March 2005, an increase of EUR 30.9 million compared to EUR 2.6 billion at the end of 2004 due to the strengthening of the U.S. dollar between the two balance sheet dates, partially offset by higher cash balances. The net debt to equity ratio was reduced to 84.7% at the end of March 2005 compared to 90.5% at the end of 2004.
In April 2005, Delhaize America, the U.S. holding company of Delhaize Group, successfully replaced its existing USD 350 million credit facility with a new USD 500 million five-year unsecured revolving credit facility to provide backup for seasonal working capital needs and general corporate purposes. Although the Group currently has no borrowings under this facility, the new facility reduces the future cost of borrowing by 125 basis points, and removes all collateral requirements.
SEGMENT REPORTING
-- In the first quarter of 2005, the contribution of the operations in the United States to the sales of Delhaize Group amounted to USD 4.0 billion, an increase of 4.3% over the first quarter of 2004. Comparable store sales, adjusted for the timing of Easter, increased by 0.3% in the first quarter of 2005 (compared to 2.5% in the first quarter of 2004). Unadjusted for the timing of Easter, comparable store sales growth was 0.5%. Sales continued to be strong at Hannaford and Kash n' Karry. Sales growth at Food Lion and Harveys slowed primarily due to increased competitive activity and consumer pressure due to rising gasoline prices.
The gross margin continued to improve primarily due to better inventory results at Food Lion. This gross margin increase almost completely offset the higher energy expenses and higher expenses related to the integration of Victory in Hannaford and the launch of Sweetbay Supermarket. The operating margin of the U.S. operations decreased slightly from 5.3% to 5.2% of net sales and other revenues. The operating profit of the U.S. business of Delhaize Group increased by 1.2% to USD 208.6 million due to the sales growth.
In the first quarter of 2005, Delhaize Group opened 10 new supermarkets in the U.S., including two relocated stores, resulting in a net increase of eight stores. Additionally, six U.S. stores were remodeled or expanded, and six Food Lion stores were converted to the Harveys banner. In the second quarter, Food Lion will launch its third market renewal program in Greensboro, North Carolina, and it is in full preparation to renew its Baltimore, Maryland market in the fall of 2005.
During the first quarter, Hannaford worked intensively on the integration of the 19 acquired Victory supermarkets. The point of sale, inventory and store deliveries systems have been changed. The supply chain was switched to Hannaford's self distribution in January. Victory started to introduce Hannaford's private label products and the prices of thousands of products were lowered to align Victory to Hannaford's EDLP pricing strategy. During the first quarter of 2005, two Victory stores were converted to the Hannaford banner. The remaining stores will be converted by the end of the year.
In the fourth quarter of 2004, Sweetbay Supermarket, a new store concept to replace Kash n' Karry in Florida, was launched. During the first quarter of 2005, all Kash n' Karry stores in the Naples/Ft. Myers market were relaunched under the Sweetbay Supermarket brand. Currently, ten Sweetbay stores are in operation, and the results have exceeded management's expectations. Approximately twenty more stores will be converted or opened under the Sweetbay banner by the end of 2005.
-- Delhaize Belgium posted sales of EUR 933.4 million in the first quarter of 2005, a decrease of 0.6% versus 2004 due to a negative calendar effect of 3.0% (two less selling days). Comparable store sales, which are adjusted for such calendar effects, increased by 2.0%. In the first quarter of 2005, Delhaize Belgium's market share decreased partly because of the opening of a large number of competitive stores and the short-term impact of adjustments to the assortment which we believe will bring future benefits.
The operating margin of Delhaize Belgium increased to 5.5%, mainly due to improved inventory results. Operating profit increased by 16.1% to EUR 51.2 million due to the margin increase.
In the first quarter of 2005, Delhaize Group entered into a binding agreement to acquire Cash Fresh, a chain of 43 supermarkets located in northeastern Belgium. The acquisition represents a strong geographical and strategic fit with our existing Belgian operations. This transaction is expected to be completed before the end of the second quarter, depending on the approval of the Belgian antitrust authorities, after which the integration into Delhaize Belgium's operations will start.
-- In the first quarter of 2005, sales in Greece grew 3.9% to EUR 215.2 million, despite a negative calendar effect. Alfa-Beta, Delhaize's Greek subsidiary, continued to perform well due to continued price investments, further differentiation of its assortment and services and the development of its network. Operating profit in Greece increased to EUR 1.2 million, despite a non-recurrent charge in relation to a legal matter.
-- Sales of the Emerging markets (Czech Republic, Romania and Indonesia) of Delhaize Group increased 5.2% to EUR 97.0 million because of better sales in Romania and Indonesia. The operating loss of the Emerging markets of Delhaize Group amounted to EUR -0.2 million in the first quarter.
In the first quarter of 2005, Delhaize Group reached a binding agreement to sell its 11 Delvita stores in Slovakia to the Rewe Group of Germany. Delhaize Group awaits the approval by the Slovak antitrust authorities to complete this transaction.
2005 FINANCIAL OUTLOOK
Delhaize Group expects the following financial results for 2005. Changes are at identical exchange rates (1 EUR = 1.2439 USD) and under IFRS, compared with the 2004 IFRS financial results indicated in the document "Delhaize Group: Transition to IFRS -- preliminary financial information", published on May 4, 2005 and available on Delhaize Group's website.
-- In 2005, the sales network of Delhaize Group is expected to
increase by approximately 102 stores to a total of 2,667 stores
(including the acquisition of Cash Fresh and the sale of 11
Delvita stores in Slovakia).
-- It is expected that net sales and other revenue of Delhaize Group
will grow in 2005 by 3.5% to 4.5%.
-- The comparable store sales growth of the U.S. operations of
Delhaize Group in 2005 is projected to be in the range of 0.5%
to 1.0%.
-- Operating profit percentage growth is expected to be in mid-single
digits.
-- Net profit growth is expected to be between 15% and 20%.
Conference Call and Webcast
Delhaize Group's management will comment on the first quarter 2005 results during a conference call starting May 12, 2005 at 03.00 p.m. CET / 09:00 a.m. EST. The conference call can be attended by calling + 44 20 7162 0181 (U.K.) or + 1 334 420 4951 (U.S.), with "Delhaize" as password. The meeting 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 March 2005, Delhaize Group's sales network consisted of 2,571 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
-- Ordinary and extraordinary general meetings of shareholders May
26, 2005
-- ADR dividend record date May 27, 2005
-- Dividend for the financial year 2004 becomes payable to owners of
ordinary shares May 31, 2005
-- Dividend for the financial year 2004 becomes payable to ADR
holders June 10, 2005
-- Press release -- 2005 second quarter results August 11, 2005
-- Press release -- 2005 third quarter results November 10, 2005
IFRS INFORMATION
This press release has been prepared on the basis of 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.
REPORT OF THE STATUTORY AUDITOR
Deloitte & Touche has conducted a limited review of the quarterly consolidated financial information for the quarter ended March 31, 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 quarterly consolidated financial information.
DEFINITIONS
-- Comparable store sales: sales from the same stores, including
relocations and expansions, and adjusted for calendar effects
-- 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
-- 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.
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 "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 or remodel 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, 2003 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/994027/150423.pdf
Full press release in pdf-version: http://hugin.info/133961/R/994016/150419.pdf