BRUSSEL, Belgium, Aug. 11, 2005 (PRIMEZONE) -- Delhaize Group (Euronext Brussels:DELB) (NYSE:DEG):
Second Quarter Highlights
-- Sales growth of 3.1% at identical exchange rates -- Operating profit down 10.3% at identical exchange rates -- Net profit of EUR 76.9 million
First Half Highlights
-- Sales growth of 3.1% at identical exchange rates -- Operating profit down 3.8% at identical exchange rates -- Net profit up 13.6% to EUR 158.2 million
Confirmation of 2005 Guidance (at identical exchange rates)
-- Sales growth is expected to be 3.5% to 4.5% -- Operating profit growth in mid-single digits -- Net profit growth is expected to be between 15% and 20%
Results Delhaize America: http://hugin.info/133961/R/1005729/154981.pdf
Full press release in pdf-version: http://hugin.info/133961/R/1005725/154979.pdf
CEO Comments
"As we indicated earlier this year, the second quarter of 2005 proved to be a challenging one for Delhaize Group," said Pierre-Olivier Beckers, President and Chief Executive Officer. "We knew we would be facing a strong base of comparison and had planned for higher operating expenses on a temporary basis because of different long-term strategic initiatives such as Victory, Sweetbay and Food Lion's market renewals. But due to the continued competitive environment in our key markets and soft economic conditions in Belgium, our results were below our own sales and profit expectations."
"However, from the month of June and continuing into the third quarter, we are seeing improving sales trends in the U.S., which will support a better performance in the second half of 2005. We are pleased with the recent sales performance of Food Lion as a result of our price and promotion activity and other sales building initiatives. These positive trends at Food Lion, the contribution of the acquisitions Victory and Cash Fresh, and a lower base of comparison in the second half year give us confidence in our full year guidance," concluded Mr. Beckers.
SECOND QUARTER RESULTS
In the second quarter of 2005, Delhaize Group posted organic sales growth of 1.2%. Net sales and other revenues decreased by 0.1% to EUR 4.6 billion, impacted by the weakening of the U.S. dollar by 4.3% versus the euro. At identical exchange rates, net sales and other revenues increased by 3.1% due to:
-- the 3.2% increase of U.S. sales, supported by the acquisition of
Victory;
-- the 2.6% increase of the Belgian sales including the acquisition of
Cash Fresh.
Delhaize Group ended the second quarter of 2005 with a sales network of 2,614 stores compared to 2,560 stores at the end of March 2005.
The gross margin increased to 25.0% of net sales and other revenues (compared to 24.6% in the second quarter of 2004) due to a better gross margin in the U.S. primarily due to better inventory results at Food Lion. The Belgian gross margin remained unchanged.
Selling, general and administrative expenses increased to 20.7% of net sales and other revenues (compared to 19.7% in the second quarter of 2004) primarily because of sales performance below expectations, expenses related to the integration of Victory, the launch of Sweetbay and the market renewals at Food Lion in advance of expected sales benefits, higher utility and fuel prices throughout the Group, the statutory increase in Belgian labor rates and higher stock option expenses.
Other operating expenses grew EUR 6.0 million to EUR 8.6 million, primarily due to the non-recurrent loss related to the demolition of an existing building to make way for the new fresh products distribution center in Belgium and to asset write-offs related to the market renewals and store closings at Food Lion.
In comparison with the strong 5.2% operating margin of prior year, the operating margin of Delhaize Group decreased to 4.5% of net sales and other revenues, resulting in a decrease of operating profit by 10.3% at identical exchange rates.
Net financial expenses decreased by 3.1% to EUR 74.7 million because of the lower U.S. dollar. The effective tax rate increased from 33.5% to 41.1% due to the 2004 receipt of USD 5.6 million in interest on a U.S. tax refund, and increased state tax accruals in the U.S., withholding tax on the dividend paid by Delhaize America to the parent company and the impact of U.S. share based compensation in 2005.
Net profit from continuing operations decreased by 27.6% to EUR 77.6 million, or EUR 0.81 per basic share. The result from discontinued operations amounted to EUR 0.7 million compared to EUR -5.2 million the previous year. Discontinued operations include the Thai operations (divested since September 1, 2004) and the Slovak operations (sold on June 30, 2005).
As a result, in the second quarter of 2005, net profit decreased by 23.0% to EUR 76.9 million. Per basic share, net profit was EUR 0.82 (EUR 1.08 in the second quarter of 2004). At identical exchange rates, net profit would have decreased by 20.4%.
FIRST HALF RESULTS
In the first six months of 2005, Delhaize Group posted organic sales growth of 1.4%.
At identical exchange rates:
-- Net sales and other revenues increased by 3.1% to EUR 9.2 billion;
-- Operating profit decreased by 3.8% to EUR 426.2 million;
-- Net profit from continuing operations decreased 13.1%:
-- Net profit increased by 17.5% to EUR 163.6 million because the
half year 2004 net profit was negatively impacted by the closing of
34 Kash n' Karry stores.
CASH FLOW STATEMENT AND BALANCE SHEET
In the second quarter of 2005, net cash provided by operating activities amounted to EUR 196.8 million. Capital expenditures increased to EUR 154.4 million compared to EUR 102.2 million in the second quarter of 2004 primarily due to the conversion of Kash n' Karry stores to Sweetbay stores and Food Lion's market renewal projects in Greensboro, NC and Baltimore, MD. An additional EUR 158.6 million has been used for the acquisition of Cash Fresh. Delhaize Group generated free cash flow of EUR 54.0 million before acquisitions and held EUR 623.9 million cash and cash equivalents at the end of the second quarter.
The net debt to equity ratio was stable at 90.4% at the end of June 2005 compared to 90.5% at the end of 2004. Delhaize Group's net debt amounted to EUR 3.0 billion at the end of June 2005, an increase of EUR 386.5 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 and the decrease of cash due to the payment of the annual dividend and the acquisition of Cash Fresh in Belgium.
SEGMENT REPORTING
-- In the second quarter of 2005, the contribution of the operations in the United States to the sales of Delhaize Group amounted to USD 4.1 billion, an increase of 3.2% over the second quarter of 2004 due to store openings and the Victory acquisition. The U.S. sales of Delhaize Group grew by 3.8% to USD 8.2 billion in the first six months of 2005 compared to the previous year, supported by the acquisition of Victory in the fourth quarter of 2004.
During the second quarter of 2005, comparable store sales, adjusted for the timing of Easter, increased by 0.2% (compared to +1.4% in the second quarter of 2004). Unadjusted for the timing of Easter, comparable store sales declined by 0.4%. Sales continued to be strong at Hannaford and Sweetbay Supermarket. Sales growth at Food Lion, Kash n' Karry and Harveys was weak due to the strong competitive activity and consumer uncertainty due to higher gasoline prices. Food Lion began price and promotion activity during the second quarter and continued this effort into the third quarter to confirm its low price leadership in the Southeast and to build sales, resulting in improving sales momentum during June and continuing in the third quarter.
Gross margin improved by 53 basis points, primarily due to better inventory results at Food Lion. Selling, general and administrative expenses increased as a percentage of sales by 84 basis points, due to weaker than expected sales, higher utility and fuel expenses and expenses related to the integration of Victory in Hannaford and the launch of Sweetbay Supermarket. In addition, other operating expenses increased because of losses on the disposal of fixed assets and closed store expenses.
The operating margin of the U.S. operations decreased from 5.4% to 5.0% of net sales and other revenues because of higher operating expenses. As a consequence, the operating profit of the U.S. business of Delhaize Group decreased by 4.6% to USD 206.1 million. During the first half of 2005, operating profit in the U.S. decreased by 1.8% to USD 414.7 million.
In the second quarter of 2005, Delhaize Group opened 8 new supermarkets in the U.S., including two relocated stores, and closed two stores, resulting in a net increase of four stores. In addition, three Food Lion stores were converted to the Harvey's banner. Seventy U.S. stores were remodeled or expanded, including 58 stores in Greensboro, North Carolina, the third market renewal program of Food Lion that was re-launched on June 22, 2005. The early consumer reaction to the re-launch has been very positive. Food Lion is preparing to re-launch its Baltimore, Maryland market in the fall of 2005.
During the second quarter, Hannaford continued to work intensively on the integration of the 19 acquired Victory supermarkets. Eight Victory stores were converted to the Hannaford banner, bringing the number of converted Victory stores to ten. The remaining nine Victory stores will be converted by the end of the third quarter, which should result in a better ratio between sales and operating expenses during the fourth quarter.
The conversions of Kash n' Karry to the Sweetbay Supermarket concept continued in the second quarter of 2005. At the end of June, 17 Sweetbay stores were in operation, and the results have exceeded management's expectations. Approximately nine additional stores will be converted or opened under the Sweetbay banner by the end of 2005. The success of the Sweetbay conversions has resulted in the decision to convert most of Kash n' Karry stores in the Tampa/St. Petersburg market to Sweetbay in 2006.
-- Delhaize Belgium posted sales of EUR 991.8 million in the second quarter of 2005, an increase of 2.6% versus 2004 thanks to the first month of contribution of Cash Fresh and a positive calendar effect of 2.1 % (two more selling days). During the first half of 2005, sales at Delhaize Belgium grew by 1.0% to EUR 1.9 billion.
During the second quarter, comparable store sales, which are adjusted for calendar effects, decreased by 2.9% because of soft consumer spending, the opening of a large number of competitive stores and the short-term impact of adjustments to the non-food assortment which we believe will bring future benefits. Delhaize Belgium's market share declined during the second quarter.
The operating margin of Delhaize Belgium decreased to 4.6%, due to weak sales, the statutory increase in labor rates and a strong base of comparison (6.0% operating margin in the second quarter of 2004, the highest that year). The Belgian gross margin remained stable while maintaining our targeted price positioning. Operating profit decreased by 21.3% to EUR 45.8 million due to higher operating expenses. For the first half of 2005, the operating profit decreased by 5.2% to EUR 97.0 million.
On May 31, 2005, Delhaize Group completed the acquisition of Cash Fresh, a highly profitable chain of 43 supermarkets located in northeastern Belgium. The acquisition represents a strong geographic and strategic fit with the existing Belgian operations. The roll-out of Delhaize products at Cash Fresh has been started with the range of "365" products.
-- the second quarter of 2005, sales in Greece grew 3.0% to EUR 222.6 million, helped by a positive calendar effect. Alfa-Beta, Delhaize's Greek subsidiary, continued to perform well due to continued focus on its price positioning, ongoing differentiation of its assortment and services and the development of its network. The operating margin of Alfa-Beta decreased slightly due to higher advertising expenses and expenses associated with stores to be opened in the second half of 2005. As a consequence, operating profit decreased to EUR 4.8 million. In the first half of 2005, sales increased in Greece by 3.4% to EUR 437.8 million, and operating profit decreased by 6.6% to EUR 6.0 million.
-- Sales of the Emerging Markets (Czech Republic, Romania and Indonesia) of Delhaize Group increased by 5.8% to EUR 99.7 million because of better sales in Romania and Indonesia. The operating profit of the Emerging Markets of Delhaize Group amounted to EUR 0.2 million in the second quarter, a decrease compared with last year when operating profit was favorably impacted by store disposals and a reversal of impairment charges. In the first half of 2005, sales increased in the Emerging Markets by 5.5% to EUR 196.7 million resulting in a break even operating profit.
On June 30, 2005, Delhaize Group completed the sale of its 11 Delvita stores in Slovakia to the Rewe Group of Germany, as previously announced.
CONFIRMATION OF 2005 FINANCIAL OUTLOOK
Delhaize Group confirms its previously communicated financial expectations 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 102 stores to a total of 2,667 stores
(including the acquisition of Cash Fresh and the disposal 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%.
This earnings outlook is based on the confidence that Delhaize Group's second half of 2005 results will be supported by the continuation of improving sales trends in the U.S., the additional market renewal at Food Lion, the completion of the integration of Victory and the acquisition of Cash Fresh. The results of the second half of 2005 will also benefit from a lower base of comparison with the same period last year.
The encouraging results in our Sweetbay conversions and the benefits of expanding Hannaford's operations and renewing Food Lion's key markets are drivers of future growth. Confidence in the success of these projects has led to an increase in allocated capital resources to approximately EUR 685 million in 2005, including USD 625 million for the U.S. operations at an exchange rate of 1 EUR = 1.25 USD. This is higher than the previously announced EUR 600 million for Delhaize Group, including USD 550 million for its U.S. operations at an exchange rate of 1 EUR = 1.30 USD.
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 second quarter and first half year 2005 results during a conference call starting August 11, 2005 at 03.00 p.m. CET / 09:00 a.m. EST. The conference call can be attended by calling + 44 (0) 20 7162 0181 (U.K.) or + 1 334 323 6203 (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 June 2005, Delhaize Group's sales network consisted of 2,614 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 third quarter results November 10, 2005
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 first and second quarter results of 2004 from Belgian GAAP to IFRS.
REPORT OF THE STATUTORY AUDITOR
Deloitte has conducted a limited review of the half yearly consolidated financial information for the period ended June 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 half yearly 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 expenses: 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/1005729/154981.pdf
Full press release in pdf-version:http://hugin.info/133961/R/1005725/154979.pdf