Full Press Release in pdf Format
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Financial Highlights Third Quarter 2009 (at identical exchange rates)
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» Revenue growth of 1.9% (4.8% at actual exchange rates)
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» Comparable store sales evolution of -1.3% in the U.S. while volume trends continued to improve for the third consecutive quarter
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» Strong comparable store sales growth of 4.6% in Belgium, resulting in a significant market share increase
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» Solid operating margin remained stable at 4.6% (increased to 4.7% at actual exchange rates)
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» Operating profit increase of 2.1% (5.7% at actual exchange rates)
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Upgrading guidance range
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» Solid year-to-date results support the increase of operating profit growth expectations to be between 1% to 4% instead of 0% to 3% (at identical exchange rates and including the 53rd week in 2008)
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» CEO Comments
Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group, commented: “In the third quarter of this year, Delhaize Group demonstrated once again its ability to operate successfully in a challenging environment. While, as expected, price pressure in the U.S. continued to impact sales, we were encouraged to see that targeted promotions and outstanding store execution resulted in improving volume trends for the third consecutive quarter. In addition, Delhaize Belgium realized an outstanding sales performance supported by its ongoing price efforts and by a very successful marketing campaign. This resulted in the largest market share jump in a number of years. Also, our Greek operations maintained strong momentum and posted solid results.”
“At the same time, our operating margin remained strong due to continued improvements in inventory management, the strength of our private brand program and effective cost management. We are on track with our plans to improve our cost structure by EUR 100 million this year.”
“Although we are mindful of the volatile environment, we remain confident in our operating companies’ resilience and our plans for the rest of the year. Our results for the first nine months of the year give us the confidence to upgrade our earlier communicated guidance of 0 to 3% operating profit growth to 1 to 4% at identical exchange rates and including the 53rd week in 2008.”
» Third Quarter 2009 Income Statement
Revenues
In the third quarter of 2009, Delhaize Group posted revenue growth of 1.9% at identical exchange rates. At actual exchange rates, revenues increased by 4.8% to EUR 4.9 billion due to the strengthening of the U.S. dollar by 5.2% against the euro compared to 2008. Organic revenue growth was 1.8% for the quarter.
Revenue growth in the third quarter of 2009 was the result of:
» a 1.2% decrease of U.S. revenues at identical exchange rates as a result of the timing of the 4th of July holiday (included in the second quarter of 2009 and in the third quarter of 2008) and comparable sales growth of -1.3% mostly due to -1.1% lower retail prices;
» a 7.2% increase of Belgian revenues, another acceleration compared to the previous quarters, supported by 4.6% comparable store sales growth;
» the continued solid performance in Greece, resulting in a 11.2% increase in revenues; and
» solid revenue growth of 26.2% at identical exchange rates in Romania and Indonesia.
Delhaize Group ended the third quarter of 2009 with a sales network of 2 697 stores, representing a net addition of 13 stores for the quarter due to the opening of 16 stores and the closure of 3 stores.
Gross margin
Gross margin increased to 25.6% of revenues (25.1% in 2008) mainly as a result of improved buying terms in Belgium, continued inventory management improvements, support from our private brand programs and lower transportation costs due to the decrease of fuel prices. These increases were partly offset by price investments and promotions in the U.S.
Other operating income
Other operating income decreased by 22.7% to EUR 20 million mainly due to a capital gain of EUR 5 million at Alfa-Beta in 2008 as well as less waste recycling income as a result of lower prices for paper.
Selling, general and administrative expenses
Selling, general and administrative expenses were 21.1% of revenues, an increase of 9 basis points as a result of soft revenue growth, higher staff and advertising costs at Delhaize Belgium and higher staff costs in our U.S. operating companies resulting from health care cost inflation and minimum wage increases. These cost increases were partially offset by cost reduction efforts throughout the Group.
Other operating expenses
Other operating expenses amounted to EUR 12 million in the third quarter of 2009 compared to EUR 5 million last year mainly due to a EUR 5 million charge as a result of a change in the discount rate used to calculate closed store provisions in the U.S. and EUR 3 million store impairment charges at Delhaize Belgium.
Operating profit
Operating profit increased by 5.7% to EUR 228 million (+2.1% at identical exchange rates). Operating margin increased by 4 basis points to 4.7% of revenues as a result of a higher gross margin and despite higher selling, general and administrative expenses, other operating expenses and lower other operating income.
Net financial expenses
Net financial expenses amounted to EUR 48 million, a decrease of 5.8% compared to last year due to lower interest rates and the repayment of debt.
Effective tax rate
The effective tax rate decreased from 37.2% to 32.1% as a result of a change in the income mix, the absence of a U.S. dividend and the resolution of a number of U.S. tax matters.
Net profit from continuing operations
Net profit from continuing operations increased by 18.1% (+14.1% at identical exchange rates) and amounted to EUR 122 million, or EUR 1.22 basic per share (EUR 1.01 in 2008).
Results from discontinued operations, net of tax
The result from discontinued operations, net of tax, amounted to EUR 7 million particularly due to the gain on the divestiture of our German operations that were sold during the third quarter.
Net profit
Group share in net profit amounted to EUR 128 million, an increase of 27.7% at actual exchange rates (+23.6% at identical exchange rates) compared to 2008. Per share, basic net profit was EUR 1.28 (EUR 1.01 in 2008) and diluted net profit was EUR 1.27 (EUR 0.98 in 2008).
» Third Quarter 2009 Cash Flow Statement and Balance Sheet
Net cash provided by operating activities
In the third quarter of 2009, net cash provided by operating activities amounted to EUR 255 million, a decrease of 15.6% at actual exchange rates (decrease of 21.5% at identical exchange rates) compared to 2008 primarily due to higher tax payments and the timing of interest payments, partly offset by an improvement in changes in operating assets and liabilities and higher profit.
Net cash used in investment activities
Capital expenditures decreased by 32.3% at actual exchange rates (34.8% at identical exchange rates) mainly due to lower store remodeling activity in the U.S., in line with the planned reduction and timing of capital spending.
Business acquisitions and disposals were EUR 98 million and included EUR 97 million for the acquisition of Alfa-Beta shares purchased as part of the tender offer launched in May 2009, and EUR 6 million for the acquisition of Prodas stores in Romania, offset by EUR 5 million due to the disposal of the German activities.
Free cash flow
Delhaize Group generated free cash flow of EUR 30 million compared to EUR 113 million last year, mainly as a result of lower cash provided by operating activities and the acquisition of Alfa-Beta shares.
Net debt
The net debt to equity ratio continued to improve, decreasing to 52.5% compared to 57.3% at the end of 2008. Delhaize Group’s net debt amounted to EUR 2.2 billion at the end of September 2009, a decrease of EUR 193 million compared to EUR 2.4 billion at the end of December 2008 mainly as a result of free cash flow generation.
» Year-to-date 2009 Income Statement
Revenues
In the first nine months of 2009, Delhaize Group posted revenue growth of 3.0% at identical exchange rates. At actual exchange rates, revenues increased by 10.7% to EUR 15.1 billion due to the strengthening of the U.S. dollar by 11.4% against the euro compared to the same period in 2008. Organic revenue growth amounted to 2.7%.
Revenue growth in the first nine months of 2009 was the result of:
» a 1.4% increase of U.S. revenues at identical exchange rates driven by comparable store sales growth of 0.4% and new store openings;
» a 4.2% increase of Belgian revenues driven by comparable store sales growth of 2.7%;
» an 11.1% increase in Greek revenues due to strong comparable store sales growth, new store openings and the integration of Plus Hellas; and
» revenue growth of 30.6% at identical exchange rates in Romania and Indonesia.
Gross margin
Gross margin increased to 25.7% of revenues (25.1% in 2008) mainly as a result of better inventory results, the continued support from private brand revenues and lower transportation costs due to the decrease of fuel prices partially offset by price investments.
Other operating income
Other operating income decreased by 18.2% to EUR 55 million mainly attributable to less waste recycling income as a result of lower prices for paper, a capital gain realized at Alfa-Beta in 2008 (EUR 5 million) and less income related to the sale of Cash Fresh stores in Belgium.
Selling, general and administrative expenses
Selling, general and administrative expenses amounted to 21.1% of revenues, an increase of 12 basis points at actual rates. At identical exchange rates, selling, general and administrative expenses were stable as cost reduction initiatives offset higher health care costs and an increase in the minimum federal wage in the U.S., the annualized impact of last year’s salary indexations on staff costs and higher advertising expenses in Belgium.
Other operating expenses
Other operating expenses amounted to EUR 23 million in the first nine months of 2009 compared to EUR 11 million last year mainly due to a change in the discount rate used to calculate closed store provisions in the U.S. and store impairment charges at Delhaize Belgium and Food Lion.
Operating profit
Operating margin grew from 4.5% last year to 4.8%. Operating profit increased by 16.9% at actual exchange rates to EUR 719 million (+7.3% at identical exchange rates).
Net financial expenses
Net financial expenses amounted to EUR 151 million, an increase of 3.2% compared to last year due to the strengthening of the U.S. dollar partly offset by lower interest rates.
Effective tax rate
The effective tax rate increased from 31.3% to 33.7% as last year was favorably impacted by the positive resolution of federal tax matters in the U.S.
Net profit from continuing operations
Net profit from continuing operations increased by 16.9% (+7.9% at identical exchange rates) and amounted to EUR 376 million, or EUR 3.73 basic per share (EUR 3.18 in 2008).
Results from discontinued operations, net of tax
The result from discontinued operations, net of tax, amounted to EUR 8 million particularly due to the gain on the divestiture of our German operations that were sold during the third quarter.
Net profit
Group share in net profit amounted to EUR 380 million, an increase of 19.3% at actual exchange rates (+10.1% at identical exchange rates) compared to 2008. Per share, basic net profit was EUR 3.81 (EUR 3.20 in 2008) and diluted net profit was EUR 3.75 (EUR 3.12 in 2008).
»Segment Reporting
United States
In the third quarter of this year, revenues from our operations in the United States decreased by 1.2% to USD 4.8 billion (EUR 3.3 billion). Comparable sales growth was negative 1.3% mainly as a result of retail prices that were 1.1% lower.
During the third quarter, food inflation turned negative. Prudent consumer spending continued and the competitive environment remained highly promotional. Despite this difficult context, volume trends improved for the third consecutive quarter thanks to targeted promotional offers and price investments. Our price investments are evidenced by the fact that our retail prices decreased 30 basis points more than our cost. This volume trend improvement was the result of increased customer traffic and less pressure on the number of items sold per transaction, showing the success of our commercial initiatives.
At the end of September 2009, Delhaize Group operated 1 595 supermarkets in the U.S. In the third quarter of 2009, Food Lion re-launched 35 stores that were part of the market renewal program in Columbia, South Carolina. In addition to the market renewals, during the third quarter of this year Food Lion remodeled 2 stores, opened 9 new stores and closed or relocated 4 stores. Hannaford opened 4 stores and closed 1.
In the third quarter of 2009, operating profit decreased by 3.7% to USD 261 million due to lower revenues and a 14 basis point operating margin decrease to 5.5% of revenues. Gross margin was higher as a result of improvements in inventory management and lower fuel prices, partly offset by promotions. Selling, general and administrative expenses were negatively impacted by higher staff costs mainly attributable to increases in minimum wage levels and rising health care costs, partly offset by cost reduction initiatives. Other operating expenses were negatively impacted mainly by a USD 7 million (EUR 5 million) charge as a result of a change in the discount rate used to calculate closed store provisions.
Belgium
In the third quarter of 2009, revenues in Belgium increased by 7.2% to EUR 1.2 billion, supported by strong comparable store sales growth of 4.6%, particularly due to a continued increase in the average number of transactions. Delhaize Belgium’s sustained price investments, targeted promotional activity and effective communication resulted in a further improvement of its price position. During the third quarter, Delhaize Belgium benefited also from its outstanding Disney Pixar card collection marketing campaign and favorable weather conditions. Market share continued to increase with the highest increase since the cycling of the Cash Fresh acquisition in 2006.
During the third quarter, the sales network of Delhaize Belgium decreased by 3 stores to 786 (including 41 stores in the Grand Duchy of Luxembourg) due to the sale of the four stores in Germany.
Also during the third quarter, operating profit increased by 18.5% to EUR 41 million. Operating margin increased 34 basis points to 3.5% due to a higher gross margin resulting from a more favorable product mix, continued good inventory management and improved negotiations with suppliers. Selling, general and administrative expenses as a percentage of revenues increased due to the annualized impact of last year’s salary indexation on staff costs, higher advertising expenses and higher bad debt expenses.
Greece
In the third quarter of 2009, revenues in Greece grew by 11.2% to EUR 350 million driven by solid comparable store sales growth and new store openings. Underlying volume trends continued to improve and have resulted in a further market share increase.
During the third quarter, Alfa-Beta’s operating margin decreased to 3.6% of revenues due to a decrease in other operating income as a result of a capital gain of EUR 5 million realized in 2008 and an increase in operating expenses due to higher depreciation and staff costs.
Rest of the World (Romania and Indonesia)
In the third quarter of 2009, revenues in the Rest of the World segment (Romania and Indonesia) increased by 12.7% (26.2% at identical exchange rates) to EUR 60 million, as a result of the expansion of the store network in both countries (primarily from the acquisition of La Fourmi in 2008 and Prodas in 2009, both in Romania) and high retail inflation.
The Rest of the World segment recorded an operating profit increase to EUR 1 million in the third quarter of 2009. Operating margin improved due to improved buying conditions and inventory management.
On July 7, 2009, Delhaize Group completed the acquisition of four Prodas supermarkets in Bucharest, which will further strengthen its position in the Romanian capital.
»Updated 2009 Financial Outlook
Based on our solid results in the first nine months of 2009 and our plans for the rest of the year, Delhaize Group upgrades its earlier communicated operating profit growth guidance of 0 to 3% when including the effect of the 53rd week in 2008 to 1 to 4% or 4.5 to 7.5% when excluding the effect of the 53rd week in 2008 and at identical exchange rates.
As a reminder, the operating profit of 2008 was favorably impacted for EUR 30.2 million by the 53rd trading week, but negatively for almost the same amount of EUR 30.7 million due to an impairment charge of EUR 14.5 million and a store closing charge of EUR 16.2 million, both related to Sweetbay.