Delhaize Group Reports Third Quarter 2003 Results
Strong Sales and Profit Raise Outlook for the Year
- Net earnings rise to EUR 53.5 million versus EUR 23.8 million in 2002
- Earnings before goodwill and exceptionals up by 63.8% to EUR 1.02 per share
- Sales decline of 7.0% due to 12.5% weaker dollar. Organic sales growth of +2.6% due to +1.0% comparable store sales growth in the U.S. and +5.7% in Belgium
- Significant improvement on last year's weak operating margins (4.2% versus 3.4%)
- Stronger trends raise outlook for the year
Full Press Release in pdf format
Financial Statements Delhaize America in US GAAP (pdf)
BRUSSELS, Belgium, November 6, 2003 - Delhaize Group (Euronext Brussels:DELB) (NYSE:DEG), the Belgian international food retailer, announced today that in the third quarter of 2003 its net earnings per share increased to EUR 0.58 from EUR 0.26 in 2002. Sales improved in the U.S. and continued to be strong in Belgium. Operating margin showed good improvement throughout Delhaize Group compared to weak margins in 2002 and financial charges benefited from lower interest expense and treasury share revaluation. Earnings before goodwill and exceptionals grew by 63.8% to EUR 1.02 per share (EUR 0.62 in 2002) despite a 12.5% weaker U.S. dollar against the euro.
For the first nine months of 2003, Delhaize Group realized EUR 270.4 million free cash flow due to solid earnings. Delhaize Group’s net debt decreased from EUR 3.9 billion at the end of 2002 to EUR 3.3 billion at the end of the third quarter 2003 due to the use of free cash flow and the weaker U.S. dollar.
“Our excellent third quarter improvement demonstrates the success of our commitment to deliver systematic improvements to our business”, said Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group. “Our results confirm our sales momentum in the U.S. and our good margin management at all our key banners. We are particularly pleased with the U.S. comparable store sales growth of 1% due to reinforced operational execution and the success of sustainable sales growth initiatives. The sales growth and continued cost discipline enabled us to increase our profitability despite continued reinvestments in our price competitiveness and in other sales building activities.”
Third Quarter 2003 Earnings
In the third quarter of 2003, total sales of Delhaize Group decreased by 7.0% to EUR 4.7 billion due to the weakening of the U.S. dollar by 12.5% against the euro. Organic sales growth was +2.6% compared to +2.0% the previous year. The improvement of the sales trend was due to:
- improving sales momentum at Food Lion and Kash n' Karry and continued strong sales at Hannaford, resulting in a comparable store sales growth of Delhaize America of +1.0%; and
- continued strong sales at Delhaize Group’s other operations, with very good comparable store sales growth in Belgium (+5.7%).
Operating costs (excluding depreciation and amortization) improved from 18.7% to 18.1% of sales due to ongoing cost and expense savings at Food Lion and other banners within the Group. The gross margin increased slightly to 25.6% of sales (25.5% in 2002) despite continued reinvestments in our price competitiveness, both in the U.S. and Belgium. Better supplier negotiations, an improved sales mix and an optimised use of zone pricing allowed us to sustain gross margins.
The operating margin of Delhaize Group rose significantly from 3.4% to 4.2% of sales. Delhaize Group posted an operating profit of EUR 194.9 million, 12.2% higher than the prior year. At identical exchange rates, operating profit would have increased by 25.5%. The strong growth reflects a recovery from the low levels of the previous year, when the U.S. operations were first impacted by the slowdown of the U.S. economy and management reorganization costs in the U.S.
Net earnings increased 124.8% to EUR 53.5 million, notwithstanding an exceptional charge of EUR 14.4 million pre-tax related to hurricane Isabel and the 12.5% weaker U.S. dollar. Financial expense declined substantially due to the weaker dollar, lower interest expense and a revaluation of the treasury shares. Per share, net earnings were EUR 0.58 in the third quarter of 2003 compared to EUR 0.26 per share in the third quarter of 2002.
In the third quarter of 2003, earnings before goodwill and exceptionals were EUR 1.02 per share, 63.8% higher than in the third quarter of 2002. At identical exchange rates, earnings before goodwill and exceptionals would have increased by 80.6%.
Balance Sheet and Cash Flow Analysis
Since the beginning of the year, Delhaize Group has generated EUR 270.4 million free cash flow, including EUR 68.6 million in the third quarter. Delhaize America generated USD 100.3 million free cash flow in the third quarter of 2003, totaling USD 979.6 million since the beginning of 2001 toward the Delhaize America target of USD 1 billion free cash flow in the period 2001-2003.
Delhaize Group’s net debt amounted to EUR 3.3 billion at the end of the third quarter of 2003, a decrease of EUR 586.8 million compared to EUR 3.9 billion net debt at the end of 2002. The decrease was partially due to the weaker U.S. dollar, but Delhaize Group used the full EUR 270.4 million free cash flow on net debt improvement. The net debt to equity ratio was reduced to 94.1% at the end of the third quarter of 2003 compared to 109.4% at the end of 2002, continuing the positive trend in this measure.
In the third quarter of 2003, the contribution of Delhaize America to the sales of Delhaize Group rose by 1.5% to USD 3.9 billion (EUR 3.4 billion). Comparable store sales grew by 1.0%. The sales trend of Delhaize Group’s U.S. operations improved for the fourth consecutive quarter, confirming the stronger sales momentum at Food Lion and Kash n’ Karry and the excellent performance of Hannaford despite the continued competitive environment in all major market areas particularly in the southeast of the U.S.
At the end of the third quarter, approximately 550 Food Lion stores and one distribution center were affected by the hurricane Isabel, through power failure, early closings, evacuation, or property damage. More than 200 stores remained closed for more than one day. The net impact of the hurricane on sales was almost neutral because pre-storm shopping was offset by lost sales during and immediately after the storm. Delhaize Group recorded an exceptional charge of USD 16.1 million (EUR 14.4 million) pre-tax related to Hurricane Isabel, primarily because of perishable product losses due to the power outages.
In the third quarter of 2003, Delhaize America’s operating margin increased from 4.0% to 4.6% of sales. Food Lion and Kash n’ Karry continued to make investments in their price competitiveness, but these investments were largely offset by ongoing initiatives in cost and expense reductions, the positive impact of the stronger sales trend and the better sales mix. A non-recurring charge related to a reorganization of U.S. management negatively impacted margins in the prior year. The operating profit of Delhaize America increased by 15.6% to USD 176.4 million (EUR 156.8 million) due to the sales improvement and strong margins.
At the end of October, Delhaize Group completed its acquisition of 43 Harveys supermarkets, located in central and south Georgia and the Tallahassee, Florida, area, as announced September 2, 2003. The acquisition fills in an area where Food Lion, the largest U.S. banner of Delhaize Group, has a limited presence and it is consistent with the strategy of filling in and reinforcing Delhaize Group’s presence in its current geographic territory. Harveys will enjoy the operational support of Food Lion.
In the third quarter of 2003, Delhaize Belgium sales grew by 6.6% to EUR 914.3 million due to the expansion of the sales network (+22 stores compared to last year) and comparable store sales growth of 5.7% (adjusted for calendar differences). The ongoing strong comparable store sales growth was due to the success of Delhaize Belgium’s commercial initiatives and the continued reinvestment in prices. The market share of Delhaize Belgium also increased.
Despite its price investments, the operating margin of Delhaize Belgium grew significantly to 4.5% (2.3% in 2002) due to disciplined cost management, the strong sales momentum and improved sales mix. A shrink problem negatively impacted margins in the prior year. The strong sales and operating margin resulted in an operating profit at Delhaize Belgium of EUR 40.9 million compared to EUR 19.6 million in 2002.
In the third quarter of 2003, sales in the Southern and Central European operations of Delhaize Group (Greece, Czech Republic, Slovakia and Romania) grew by 1.0% to EUR 283.4 million. Summer sales were weak at Alfa-Beta in Greece but were improving again by the end of the quarter while margins remained strong. Delvita’s sales in the Czech Republic and Slovakia remained weak due to price deflation and the competitive environment, but its operating margin evolved favorably due to an improved sales mix and effective cost management. The operating profit of the Southern and Central European operations of Delhaize Group grew 15.0% to EUR 5.7 million in the third quarter of 2003.
Sales of the Asian operations of Delhaize Group amounted to EUR 54.2 million compared to EUR 53.6 million in 2002. The increase remained limited due to the depreciation of the Asian currencies against the euro. In local currencies, the sales growth of the Asian operations was more significant. The operating loss of the Asian activities of Delhaize Group amounted to EUR -1.2 million in the third quarter.
2003 Financial Outlook
The third quarter results and the improving sales trend lead the management of Delhaize Group to revise upward the sales and earnings outlook for the Company for 2003.
- In 2003, the sales network of Delhaize Group is expected to grow by approximately 79 stores to a total of 2,606 stores. Previously, 2,580 stores were planned at year-end. The increase is mainly related to the acquisition of Harveys.
- At identical exchange rates, it is expected that annual sales of Delhaize Group will grow in 2003 by 4.0% to 4.5% (including 53 weeks of sales at Delhaize America) instead of the 2.0% to 3.5% previously forecasted. Assuming an exchange rate of EUR 1 = USD 1.177 for the balance of the year, this implies sales in 2003 of EUR 18.8 billion to EUR 18.9 billion.
- Delhaize America’s comparable store sales growth in 2003 is projected to be flat to slightly positive instead of -1.0% to flat as previously indicated.
- Delhaize Group's expectations for 2003 earnings before goodwill and exceptionals has improved, at identical exchange rates, to an increase of +25% to +30%. Previous guidance was an increase of +15% to +20%. Assuming an exchange rate of EUR 1 = USD 1.177 for the balance of the year, earnings before amortization of goodwill and intangibles and exceptional items would be between EUR 360 million and EUR 376 million versus EUR 334 million in 2002.
- At identical exchange rates, Delhaize Group's net earnings expectation is flat to +10% as compared to 2002. Previous guidance was a net earnings decrease of -13% to flat earnings as compared to 2002. The net earnings guidance includes the impact of previously reported exceptional expenses related to U.S. store closings, the streamlining of Food Lion’s support structure, the inventory accounting method change at Food Lion and Kash n’ Karry and Hurricane Isabel amounting to a total of EUR 153.0 million at identical exchange rates. Assuming an exchange rate of EUR 1 = USD 1.177 for the balance of the year, reported earnings would be between EUR 150 million and EUR 166 million. Future charges or gains on asset disposals, impairments or financing activities could alter this projection.
Delhaize Group is a Belgian food retailer present in eleven countries on three continents. At the end of September 2003, Delhaize Group’s sales network consisted of 2,522 stores. In 2002, Delhaize Group posted EUR 20.7 billion (USD 19.6 billion) in sales and EUR 178.3 million (USD 168.6 million) in net earnings. Delhaize Group employs approximately 144,000 people. Delhaize Group is listed on Euronext Brussels (DELB) and the New York Stock Exchange (DEG).
Conference call and Webcast
The Delhaize Group management will comment on the third quarter 2003 results during a conference call starting November 6, 2003 at 03.00 p.m. CET / 09:00 a.m. EST. The conference call can be attended by calling + 44 20 7019 0810 (U.K.) or + 1 773 756 4602 (U.S.), with “Delhaize” as password. The meeting will also be broadcast live over the internet at . An on-demand replay of the web cast will be available after the conference call at .
This press release is available in English, French and Dutch. You can also find it on the web site . Questions can be sent to email@example.com.
Report of the Statutory Auditors
We have conducted a limited review of the interim consolidated accounts of Delhaize Group as at September 30, 2003. 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 interim consolidated accounts as presented. - Deloitte & Touche Reviseurs d’Entreprises, represented by Mr James Fulton.
- Press release - 2003 sales: January 15, 2004
- Press release - 2003 fourth quarter results: March 11, 2004
- Press release - 2004 first quarter results: May 6, 2004
- Ordinary general meeting of shareholders: May 27, 2004
- Adjusted EBITDA: earnings before interest, taxes, depreciation, amortization, other income/(expense), exceptional income/(expense) and minority interests
- Comparable store sales: sales from the same stores, including relocations and expansions
- Earnings before goodwill and exceptionals: net earnings plus amortization of goodwill and intangibles and exceptional items, net of taxes and minority interests
- Earnings before goodwill and exceptionals per share: earnings before goodwill and exceptionals divided by the weighted average number of shares during the period
- Free cash flow: cash flow before financing activities and financial investments, 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
- 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
Adjusted EBITDA and earnings before goodwill and exceptionals are presented as additional analytical information. We do not represent adjusted EBITDA and earnings before goodwill and exceptionals as alternative measures to net earnings, which is determined in accordance with Belgian GAAP. Adjusted EBITDA and earnings before goodwill and exceptionals as reported by Delhaize Group might differ from similarly titled measures by other companies.
Guy Elewaut: + 32 2 412 29 48
Geoffroy d'Oultremont: + 32 2 412 83 21
Ruth Kinzey (U.S. media): + 1 704 633 82 50 (ext. 2118)
Amy Shue (U.S. investors): + 1 704 633 82 50 (ext. 2529)
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 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, 2002 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.