Second Quarter 2006 Results
- Strong comparable store sales growth in the U.S. (+3.4%) and in Belgium (+3.2%)
- Total sales grew by 6.8%
- Operating margin expanded to 4.7% (4.5% in 2005)
- Net profit increased by 23.1%
First Half 2006 Results
- Total sales grew by 9.0%
- Net profit increased by 21.4%
2006 Guidance
- Comparable store sales growth guidance for Delhaize U.S. raised to 2.5% to 3.0% (previously 1.5% to 2.0%)
- Sales growth guidance of Delhaize Group at identical exchange rates raised to 4.5% to 5.5% (previously 4% to 5%)
- Confirmation of profit guidance
Full press release in pdf format
Financial statements Delhaize America (US GAAP)
Report of the Statutory Auditor
CEO Comments
“Delhaize Group realized a very strong performance in the second quarter of 2006,” said Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group. “Our sales growth was outstanding as confirmed by a 3.4% comparable store sales growth in the U.S., the best performance in five years. Our Belgian business has recovered well since the beginning of the year as confirmed by the 3.2% comparable store sales growth in the second quarter. Sales growth also remained impressive in Greece.”
“Our results this quarter can be tied directly to thoughtfully planned and well executed initiatives within the Group such as assortment optimization, market renewals, acceleration of the store opening program and our recent fill-in acquisitions. Our strong first half results and the continued positive developments of our business lead us to raise our full year sales guidance, to increase our U.S. comparable store sales guidance and to confirm our profit guidance for 2006”, concluded Mr. Beckers.
Income Statement
In the second quarter of 2006, net sales and other revenues of Delhaize Group increased by 6.8% to EUR 4.9 billion. Organic sales growth amounted to 5.7%, the best performance in five years. Exchange rate changes had only a marginal impact on results. Net sales and other revenues increased by 6.5% at identical exchange rates due to:
- the 5.7% increase of U.S. sales driven by the strong performance of Food Lion and an improved trend at Hannaford. Comparable store sales grew by 3.4% for the U.S. operations, adjusted for the impact of Easter, which fell in the second quarter of 2006 and the first quarter of 2005;
- the 7.7% increase of Belgian sales due to comparable store sales growth of 3.2% and the acquisition of Cash Fresh at the end of May 2005; and
- the 14.1% increase of Greek sales due to strong sales momentum in the existing stores and new store openings.
Delhaize Group ended the second quarter of 2006 with a sales network of 2,663 stores compared to 2,636 stores at the end of 2005.
Gross margin increased to 25.2% of net sales and other revenues (compared to 25.0% in the second quarter of 2005) primarily due to better inventory results at Food Lion and in Belgium, continued margin management and price optimization at Food Lion and an improved sales mix at Food Lion, offsetting continued investments in price competitiveness in several companies of the Group. There was particular focus in the second quarter on the price competitiveness of Hannaford.
Selling, general and administrative expenses were stable at 20.8% of net sales and other revenues. The conversion of Kash n’ Karry stores to Sweetbay in Florida (21 Kash n’ Karry stores were converted to Sweetbay in the second quarter), higher utility and fuel prices throughout the Group and higher medical costs in the U.S. put pressure on our expenses, but the good sales increase and expense control efforts neutralized these impacts.
Other operating expenses amounted to EUR 7.8 million, primarily related to closed store expenses and losses on the disposal of fixed assets in the U.S.
The operating margin of Delhaize Group increased to 4.7% of net sales and other revenues compared with 4.5% in 2005. Operating profit increased by 10.6% to EUR 228.3 million.
Net financial expenses decreased by 7.2% to EUR 69.3 million due to the positive impact of debt repayments made in the first half of 2006. The effective tax rate decreased from 41.1% to 38.8% primarily due to the resolution of U.S. state audits.
The stronger operating profit and lower financial expenses and tax rate, resulted in a 25.4% higher net profit from continuing operations of EUR 97.3 million, or EUR 1.01 per basic share (EUR 0.81 in 2005).
In the second quarter of 2006, the Group share in net profit increased by 23.1% to EUR 94.6 million. Per basic share, net profit was EUR 1.00 (EUR 0.82 in the second quarter of 2005) and per diluted share EUR 0.96 (EUR 0.79 in the second quarter of 2005).
First Half Year Results
In the first six months of 2006, Delhaize Group posted:
- Organic sales growth of 4.5%;
- Net sales and other revenues growth of 9.0% to EUR 9.7 billion;
- An operating profit increase of 11.2% to EUR 456.9 million;
- Net profit from continuing operations up by 21.6%; and
- Group share in net profit increase of 21.4% to EUR 191.9 million.
Cash Flow Statement and Balance Sheet
In the second quarter of 2006, net cash provided by operating activities amounted to EUR 255.5 million due to increased profitability and improvements in working capital. Capital expenditures increased to EUR 185.9 million (EUR 154.4 million in the second quarter of 2005) primarily due to the continued Sweetbay roll-out, the market renewal program at Food Lion and more store openings. Delhaize Group generated free cash flow of EUR 72.2 million, and after major debt repayments earlier in the year, the Group held EUR 283.4 million cash and cash equivalents at the end of the second quarter.
The net debt to equity ratio decreased to 78.5% at the end of June 2006 compared to 81.4% at the end of 2005. Delhaize Group’s net debt amounted to EUR 2.7 billion at the end of June 2006, a decrease of EUR 206.9 million compared to EUR 2.9 billion at the end of 2005 due to the weakening of the U.S. dollar between the two balance sheet dates and the continued generation of free cash flow. In April, Delhaize America redeemed USD 563.5 million in bonds with a 7.375% coupon using cash on hand and existing credit facilities.
Segment Reporting
In the second quarter of 2006, the contribution of the operations in the
United States to the sales of Delhaize Group amounted to USD 4.4 billion, an increase of 5.7% over the second quarter of 2005, mainly due to the strong sales performance at Food Lion and the improved sales trend at Hannaford. The U.S. sales of Delhaize Group grew by 4.4% in the first six months of 2006.
During the second quarter of 2006, comparable store sales, excluding the effect of the timing of Easter, increased by 3.4%, which fell in the second quarter of 2006 and the first quarter of 2005. Including the effect of Easter, comparable store sales growth was 4.1%.
The strong sales momentum at Food Lion was supported by effective price, promotion and marketing initiatives, improved assortment and customer service, the success of the market and concept renewal initiatives, and last year’s store closings by Winn-Dixie, a major competitor of Food Lion. Following a softer first quarter due to weaker consumer spending, Hannaford’s sales grew solidly in the second quarter, supported by effective promotions and marketing initiatives and a solid sales uplift in the former Victory stores. Harveys and Sweetbay continued to perform well in the second quarter, while the non-converted Kash n’ Karry stores suffered a negative sales trend.
Gross margin improved by 6 basis points due to better inventory results, continued margin management and price optimization and an improvement in the sales mix at Food Lion partially offset by targeted price reductions to improve the competitiveness of our U.S. businesses. Selling, general and administrative expenses increased as a percentage of sales by 12 basis points, mainly due to planned expenses related to the Sweetbay conversions, increases in health care costs and higher utility and fuel expenses.
The operating margin of the U.S. business remained stable at 5.0% of net sales and other revenues. The operating profit of the U.S. business of Delhaize Group increased by 5.5% to USD 217.4 million. In the first half of 2006, the operating profit amounted to USD 440.9 million, an increase of 6.3% over 2005.
In the second quarter of 2006, Delhaize Group opened 19 new supermarkets in the U.S. (of which eight were Hannaford stores), including five relocated supermarkets. Four Harveys and five Food Lion stores were closed. In addition, four Food Lion stores were converted to the Harveys’ banner.
Food Lion is progressing rapidly in its renewal work in the Washington, DC market and the entry of the new market of Greenville-Spartanburg, South Carolina. In Washington, three converted Bottom Dollar Food stores and 19 Food Lion stores were relaunched in the second quarter. Approximately 25 Bloom, 11 Bottom Dollar Food and seven Food Lion conversions will be completed in the second half of the year, while approximately 15 Bloom stores will be ready in the early part of the first quarter of 2007 due to delays in obtaining building permits. In the Greenville-Spartanburg market, three Bloom stores and one Food Lion store were opened in the second quarter. They will be followed by two Bloom and two Food Lion stores later this year.
Hannaford continued its organic expansion as part of an accelerated opening plan for this year, with the opening of eight supermarkets in the second quarter, following six store openings in the first quarter. The Company invested in its price competitiveness, with a particular focus on the Massachusetts area.
Twenty-one Kash n' Karry stores were converted to the Sweetbay Supermarket concept in the second quarter of 2006. At the end of June, 48 Sweetbay stores were in operation, almost half of our Florida company. The remaining 22 stores in the Tampa/St. Petersburg market will be converted to the Sweetbay banner by the end of 2006. Customers continued to react positively to the Sweetbay brand, as reflected in major sales uplifts after conversion.
Delhaize Belgium posted net sales and other revenues of EUR 1.1 billion in the second quarter of 2006, an increase of 7.7% versus 2005, despite two less selling days. The Company posted strong comparable store sales growth of 3.2%. Cash Fresh, acquired on May 31, 2005, contributed three months of sales versus one month last year. The good sales momentum confirmed the improving trend of the first quarter despite a continued large number of competitive openings. Delhaize Belgium again increased its market share. During the first half of 2006, sales at Delhaize Belgium grew by 8.4% to EUR 2.1 billion.
The operating margin of Delhaize Belgium increased to 5.1% of net sales and other revenues (4.6% in 2005). Operating profit increased by 18.1% to EUR 54.0 million in the second quarter of 2006 and increased by 3.4% to EUR 100.3 million in the first six months of 2006.
At the end of July, all company-operated supermarkets and all Delhaize City stores were equipped with ACIS, the inventory and margin management system originally developed by the U.S. operations of Delhaize Group. Training of employees and implementation of the different processes related to this system will be completed at the end of the summer. As planned, the first benefits of ACIS should be evident in the last quarter of this year.
In the second quarter of 2006, sales in
Greece grew 14.1% to EUR 254.0 million due to strong comparable store sales growth and new store openings (12 new stores in the last 12 months to a total of 142). The operating margin of Alfa-Beta increased to 2.7% of sales, while the operating profit increased by 42.1% to EUR 6.9 million. In the first half of 2006, net sales and other revenues increased in Greece by 11.9% to EUR 489.8 million, and operating profit increased by 69.4% to EUR 10.2 million.
Net sales and other revenues of the
Emerging Markets (Czech Republic, Romania and Indonesia) of Delhaize Group increased by 7.1% to EUR 106.8 million due to the continued good sales momentum in Romania and Indonesia. The operating profit of the Emerging Markets of Delhaize Group amounted to EUR 1.5 million in the second quarter (EUR 0.2 million in 2005). In the first half of 2006, sales increased in the Emerging Markets by 7.1% to EUR 210.8 million, and operating profit increased to EUR 3.2 million.
2006 Financial Outlook
Based on the strong performance in the first six months of 2006 and our confidence for the remainder of the year, Delhaize Group increases its sales guidance for the full year (at identical exchange rates of 1 EUR = 1.2441 USD):
- Comparable store sales growth of the U.S. operations of Delhaize Group in 2006 is expected to be in the range of +2.5% to +3.0% (previously +1.5% to +2.0%).
- It is expected that net sales and other revenue growth of Delhaize Group will be in the range of 4.5% to 5.5% (previously +4.0% to +5.0%).
Delhaize Group confirms its profit guidance at identical exchange rates (1 EUR = 1.2441 USD):
- Operating profit is expected to grow by 4% to 6% in 2006.
- Net profit (Group share) growth expectations are between 8% and 12%.
In addition, in 2006:
- The sales network of Delhaize Group is expected to increase by approximately 85 stores to a total of 2,721 stores (compared to the previous guidance indicating an increase by 96 stores to a total of 2,732 stores).
- Delhaize Group continues to expect capital expenditures (excluding finance leases) of approximately EUR 770 million at identical exchange rates, including approximately USD 700 million for the U.S. operations of the Group.
Contacts
Guy Elewaut: +32 2 412 29 48
Geoffroy d'Oultremont: + 32 2 412 83 21
Hans Michiels: + 32 2 412 83 30
Ruth Kinzey (U.S media): + 1 704 633 82 50 (ext. 2118)
Amy Shue (U.S investors): + 1 704 633 82 50 (ext. 2529)
CONFERENCE CALL AND WEBCAST
Delhaize Group’s management will comment on the second quarter and first half 2006 results during a conference call starting August 10, 2006 at 03.00 p.m. CET / 09:00 a.m. EST. The conference call can be attended by calling +44 20 7162 0125 (U.K.), +1 334 420 4950 (U.S.) or +32 2 290 1411 (Belgium), 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 2006, Delhaize Group’s sales network consisted of 2,663 stores. In 2005, Delhaize Group posted EUR 18.6 billion (USD 23.2 billion) in net sales and other revenues and EUR 364.9 million (USD 450.4 million) in net profit. At the end of 2005, Delhaize Group employed approximately 135,700 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.
IFRS INFORMATION
The interim financial information has been prepared in accordance with the recognition and measurement principles of IFRS, as adopted by the European Union.
REPORT OF THE STATUTORY AUDITOR
Deloitte Bedrijfsrevisoren/Reviseurs d’Entreprises SCC has conducted a limited review of the interim consolidated financial information as at June 30, 2006. 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. The full report of the statutory auditor on the limited review of the interim consolidated financial information can be found on Delhaize Group’s website at www.delhaizegroup.com.
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, investment in debt securities and sale and maturity of debt securities
- Net debt: non-current financial liabilities, plus current financial liabilities and derivatives liabilities, minus derivative assets, investments in securities, and cash and cash equivalents
- Net financial expenses: finance costs less income from investments
- 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, gains on sale of fixed assets, recycling income, and services rendered to wholesale customers.
- 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
Statements that are included or incorporated by reference in this press release and other written and oral statements made from time to time by Delhaize Group and its representatives, other than statements of historical fact, which address activities, events and developments that Delhaize Group expects or anticipates will or may occur in the future, including, without limitation, statements about strategic options, future strategies and the anticipated benefits of these strategies, are “forward-looking statements” within the meaning of the U.S. federal securities laws that are subject to risks and uncertainties. These forward-looking statements generally can be identified as statements that include phrases such as “guidance”, “outlook”, “projected”, “believe”, “target”, “predict”, “estimate”, “forecast”, “strategy”, “may”, “goal”, “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, 2005 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.