BRUSSELS, Belgium, November 7, 2002 – Delhaize Group (Euronext Brussels: DELB, NYSE: DEG), the Belgian international food retailer, announced today that in the third quarter of 2002 reported earnings amounted to EUR 23.8 million compared to EUR -14.9 million in 2001, which included an exceptional charge for the closure of Super Discount Markets. On a per share basis net earnings were EUR 0.26 (EUR -0.16 in 2001).
Sales of Delhaize Group were supported by growth in Europe, in Asia and at Hannaford in the U.S. Hannaford continued to benefit from the ongoing roll-out of the Festival for the Senses market strategy, Delhaize Belgium from the success of its new commercial policy and Alfa-Beta (Greece) from the continued success of the integration of its Trofo acquisition. The two other U.S. banners, Food Lion and Kash n’ Karry, experienced sales and margin declines as both were negatively impacted by economic softness and aggressive competition.
“We are very focused in our efforts to improve sales momentum especially at Food Lion”, said Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group. “We are committed to strengthen Food Lion’s competitive position through price leadership, better operational execution and enhancing its customers’ shopping experience in fresh products, service and convenience. In light of the current softness in sales, we also continue to identify cost savings to increase competitive leverage and protect profitability.”
Organic sales growth of Delhaize Group was positive 2.0% in the third quarter of 2002; however, total sales decreased by 7.5% to EUR 5.0 billion compared to 2001 due to the weakening of the U.S. dollar, weak sales at two of its U.S. banners and the closing of Super Discount Markets in the fourth quarter of 2001. At identical exchange rates total sales growth would have been 0.6%. Delhaize Group added 14 stores to its sales network in the quarter, reaching a total of 2,495 stores.
Delhaize continues to generate significant operating cash flow. In the third quarter, cash flow from operations (EBITDA) of Delhaize Group amounted to EUR 344.7 million, or 6.8% of sales. Cash flow from operations declined 16.8% primarily due to the depreciation of the U.S. dollar and weak sales at Food Lion and Kash n’ Karry. At identical exchange rates, EBITDA would have decreased by 8.2%.
Reported earnings in the third quarter of 2002 were EUR 23.8 million. In 2001, reported earnings for the quarter were EUR -14.9 million due to an exceptional charge of EUR 73.4 million (Group share net of tax) related to the closing of Super Discount Markets and an asset impairment on Delvita. Year-to-date reported earnings were EUR 118.6 million, more than double prior year. Cash earnings in the third quarter decreased to EUR 57.9 million (EUR 92.8 million in 2001). The mark to market of treasury shares and costs related to management changes in the U.S. impacted current earnings negatively by EUR 21.2 million (EUR 16.7 million, net of tax) in the third quarter. Cash earnings are 2.0% behind prior year through nine months.
On a per share basis, reported earnings amounted to EUR 0.26 (EUR -0.16 in 2001). Cash earnings per share in the third quarter were EUR 0.63 compared to EUR 1.00 the prior year.
Delhaize Group built on its excellent first half generation of free cash flow, producing EUR 88.6 million in the third quarter. Free cash flow after capital expenditure and dividends was EUR 315.2 million year-to-date. Delhaize America generated USD 21.2 million free cash flow in the third quarter or USD 107.2 million before the intra-group dividend payment to Delhaize “Le Lion”. Since the beginning of 2001, Delhaize America has generated USD 734.4 million free cash flow, consistent with the target to generate USD 1 billion free cash flow in 2001-2003 at Delhaize America.
Since the beginning of the year, Delhaize Group has applied EUR 306.8 million free cash flow to the reduction of debt balances and has increased lease obligations by EUR 40.3 million. Combined with the weaker U.S. dollar translation, net debt in euro has decreased by EUR 684.9 million year-to-date to EUR 4.1 billion. The Group’s net debt to equity ratio at the end of September 2002 stood at 110.9% compared to 127.3% at the end of 2001.
Financial OutlookOn the basis of the first nine months results and the expected development in the last quarter of the year, Delhaize Group issues the following guidance:
- In 2002, the sales network is expected to grow by approximately 80 stores to a total of 2,524 stores.
- At identical exchange rates, it is expected that sales of Delhaize Group will grow in 2002 by 1.0% to 2.0% (excl. Super Discount Markets). Assuming an average exchange rate of EUR 1 = USD 0.94, this implies sales of EUR 20.6 billion to EUR 20.8 billion.
- Delhaize America’s comparable store sales growth is projected to be in 2002 in the range of -1.0% to -1.5%.
- At identical exchange rates, Delhaize Group expects cash earnings to decrease in 2002 between 7% and 13%, or 20% to 25% on a per share basis. Assuming an average exchange rate of EUR 1 = USD 0.94 for the year, cash earnings would be between EUR 280 million and EUR 300 million, or EUR 3.02 to EUR 3.24 per share.
- Delhaize Belgium's operating cash flow margin is expected to be at or above 5% in 2002.
- Delhaize Group is on track to realize the targeted net debt to equity ratio of approximately 100% at the end of 2003.
GEOGRAPHICAL OVERVIEWUnited StatesIn the third quarter of 2002, the sales contribution of Delhaize America to the Delhaize Group results decreased by 0.2% to USD 3.8 billion (EUR 3.9 billion) due to weak sales at Food Lion and Kash n’ Karry. Hannaford continued to perform in line with expectations in the third quarter. Comparable store sales of Delhaize America decreased by 2.0% in the third quarter of 2002. While transaction counts at Food Lion and Kash n’ Karry remained stable, the average purchase per visit decreased as consumers were exploring a variety of shopping choices to achieve the lowest price by item in their full market basket.
In the third quarter, Delhaize America opened five new or relocated stores and closed two stores, resulting in a net increase of three stores to a total of 1,475 stores. In addition, Delhaize America remodeled or expanded 28 supermarkets.
While Delhaize America achieved a 7.8% EBITDA margin for the quarter, the sales shortfall resulted in an increase in operating costs as a percentage of sales. Shrink evolved negatively due to weak sales. Gross margin also decreased due to price promotions, especially by Kash n’ Karry in Florida.
EuropeIn the third quarter of 2002, Delhaize Belgium sales grew by 8.5% to EUR 857.6 million. The sales growth was due to the expansion of the store network by five stores and the rise in comparable store sales of 6.1% (3.1% adjusted for calendar effect). Internal inflation was flat due to price investments in the course of the year. EBITDA declined by 13.5%, significantly impacted by inventory shrinkage.
The third quarter validated the success of the new commercial policy that was introduced in early 2002 by Delhaize Belgium. This resulted for the second consecutive quarter in an increase of market share. The new policy allows Delhaize Belgium to maintain competitive price positioning while continuing to differentiate itself as the leading Belgian food specialist.
In the third quarter of 2002, sales in the Central and Southern European operations of Delhaize Group (Greece, Czech Republic, Slovakia and Romania) grew by 9.1% to EUR 280.6 million. In Greece, comparable store sales increased in the Trofo stores by more than 20%, while also the Alfa-Beta stores continued to perform strongly resulting in gain of market share. Delvita continued the major remodeling program of its store base, but sales were weak due to competitive store openings and floods causing the temporarily closure of several Prague stores. EBITDA of the Central and Southern European operations of Delhaize Group grew by 53.6% to EUR 12.3 million.
AsiaIn the third quarter of 2002, the operations of Delhaize Group in Asia reported sales growth of 18.0% to EUR 53.6 million. At the end of the third quarter of 2002, Delhaize Group reported the opening of its 100th supermarket in Asia, including 34 in Thailand, 33 in Indonesia and 33 in Singapore. Cash flow from operations of the Asian activities of Delhaize Group was EUR 0.7 million in the third quarter.
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Delhaize GroupDelhaize Group is a Belgian food retailer present in ten countries on three continents. At the end the third quarter of 2002, Delhaize Group’s sales network consisted of 2,495 stores. In 2001, Delhaize Group posted EUR 21.4 billion (USD 19.2 billion) in sales and cash earnings of EUR 339.0 million (USD 303.6 million). Delhaize Group employs approximately 147,000 people. Delhaize Group is listed on Euronext Brussels and the New York Stock Exchange.
Report of the Statutory AuditorsWe have conducted a limited review of the quarterly consolidated accounts of Delhaize Group as at September 30, 2002. 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 quarterly accounts as presented. - Deloitte & Touche Reviseurs d’Entreprises, represented by Mr James Fulton.
Definitions- Cash earnings: reported earnings plus goodwill amortization, store closing charges in the normal course of business and exceptional items, net of taxes and minority interests
- Cash EPS: cash earnings divided by the weighted average number of shares during the period
- Cash flow from operations: EBITDA or earnings before interest, taxes, depreciation, amortization, store closing charges in the normal course of business, exceptional items and minority interests
- Comparable store sales: sales from the same stores, including relocations and expansions
- Free cash flow: cash flow before financing activities 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 short-term investments (excl. treasury shares) and cash.
- 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, including treasury shares
- 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
- Weighed 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
EBITDA and cash earnings are presented as additional analytical information. We do not represent EBITDA or cash earnings as alternative measures to net income, which is determined in accordance with Belgian GAAP. EBITDA and cash earnings as reported by Delhaize Group might differ from similarly titled measures by other companies.
Financial CalendarPress release – 2002 sales: January 9, 2003
Press release – 2002 results: March 13, 2003
Press release – 2003 first quarter results: May 8, 2003
This press release is available in English, French and Dutch. Questions can be sent to investor@delhaizegroup.com.
Delhaize Group’s management will be discussing the financial results for the third quarter 2002 during an investors’ conference call that will start at 03.00 p.m. CET (09.00 a.m. EST) on November 7, 2002. To participate in the conference call, please call +44.20.8240.8240 (UK) or +1.415.217.0050 (US) and ask for “Delhaize”. The conference call will also be broadcast live over the internet on November 7, 2002 at 03.00 p.m. CET (09.00 a.m. EST) at www.delhaizegroup.com. A replay of this web cast will be available at the same website starting at 06.00 p.m. CET (12.00 p.m. EST) on November 7, 2002.
Safe HarborSome 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, 2001 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.
ContactsGuy Elewaut: + 32 (0)2 412 29 48
Geoffroy d’Oultremont: + 32 (0)2 412 83 21
Amy Shue (U.S. investors): + 1 (704) 633-8250, ext. 2529
Ruth Kinzey (U.S. media): + 1 (704) 633-8250, ext. 2118