“Delhaize Group had an excellent year in 2007,” said Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group. “We realized the strongest sales momentum in years in our U.S. and Greek operations, and we held our industry-leading operating margins due to a better sales mix and disciplined cost management. Despite the increasingly uncertain economic environment, the strong performance continued in the fourth quarter in the U.S. and Greece, while our Belgian operations recovered after a challenging third quarter.”
“As reflected in our current guidance, 2008 promises to be another dynamic year”, added Mr. Beckers. “We continue to implement new initiatives in our existing stores aimed at increased differentiation from our competition. We plan a major step-up in our store opening plan with an increase of our sales network by approximately 150 stores. We are mindful of the more difficult consumer and inflationary outlook, but we believe we are prepared to seize market share opportunities in such an environment thanks to our value proposition, our low cost base and our strong balance sheet.”
Full Year 2007 Income Statement
In 2007, revenues of Delhaize Group amounted to EUR 19.0 billion, a decrease of 1.4% versus prior year, due to the weakening of the U.S. dollar by 8.4% against the euro compared to 2006. At identical exchange rates, revenues grew by 4.9%. Organic revenue growth amounted to 5.2%, stronger than the already high organic revenue growth of 5.0% in 2006. The revenue growth in 2007 was due to:
· the 5.1% increase of U.S. revenues (4.4% increase in 2006) driven by an outstanding comparable store sales growth of 3.8%, the highest in more than ten years due to strong sales momentum at Food Lion and Hannaford throughout the year and at Sweetbay in the second half of 2007;
· the 1.7% increase of Belgian revenues, negatively impacted by the sale of Di but supported by a 1.6% comparable store sales growth;
· the continued outstanding performance of Alfa-Beta, showing a 13.9% increase in revenues; and
· revenue growth of 20.9% in the Emerging Countries.
Delhaize Group ended 2007 with a sales network of 2,545 stores, taking into account the divestiture of 97 Delvita stores (Czech Republic) and 132 Di stores (Belgium) in 2007, and the net addition of 69 stores to continuing operations.
Gross margin increased to 25.3% of revenues (25.2% in 2006). Investments in price competitiveness at Hannaford, Sweetbay and Delhaize Belgium were more than offset by an improvement in sales mix in several of our operations particularly in fresh and private label products, by continued effective margin optimization at Food Lion and by better inventory results at Hannaford and Alfa-Beta.
Other operating income increased by 30.2% to EUR 107.9 million mainly due to a USD 11.3 million gain on the disposal of idle property by Hannaford, EUR 7.9 million gains on the sale of Cash Fresh stores to independent owners to operate as Delhaize affiliates and higher recycling income (mainly due to an increase in the price of recycled paper).
Selling, general and administrative expenses were stable at 20.7% of revenues. Increased advertising expenses linked to our many initiatives throughout the Group, higher fuel and salary expenses and a comparison to 2006 which benefited from a USD 19.5 million positive impact of forfeitures related to U.S. benefit plans were offset by the leverage impact of the strong sales momentum in most operating companies.
Other operating expenses amounted to EUR 36.5 million in 2007, compared to EUR 19.2 million in 2006, mainly due to a USD 18.6 million impairment charge at Sweetbay in the fourth quarter related to an adjustment of the carrying value of 25 stores, and a charge of EUR 5.6 million related to the conversion of Cash Fresh stores.
Operating profit increased by 6.3% at identical exchange rates (-1.0% at actual exchange rates to EUR 937.2 million). Excluding the impairment charge at Sweetbay, Delhaize Group operating profit would have grown by 7.8% at identical exchange rates, in line with our guidance of operating profit growth at the high end of the 6 to 8% range. Delhaize Group was again able to maintain its best-in-class operating margin at 4.9% of revenues.
Net financial expenses amounted to EUR 332.7 million (including EUR 100.7 million related to the debt refinancing performed in the second quarter of 2007). Without this one-time charge,net financial expenses decreased by 15.8% (9.3% at identical exchange rates) due to the positive impact of the debt refinancing in 2007 and to major debt repayments made in the first half of 2006.
The effective tax rate decreased to 33.7% (36.5% in 2006) primarily as a result of the favorable impact of the debt refinancing, the absence of a dividend payment by Delhaize America in 2007, and a U.S. tax refund received in the first quarter of 2007.
Net profit from continuing operations increased by 0.1% at identical exchange rates (-5.8% at actual exchange rates) to EUR 400.8 million, or EUR 3.96 per basic share (EUR 4.39 in 2006). Excluding the impact of the one-time debt refinancing charge, net profit from continuing operations increased by 15.6% at identical exchange rates, in line with our 14% to 18% guidance range.
In 2007, the result from discontinued operations, net of tax, amounted to EUR 23.7 million due to a positive accumulated foreign currency translation adjustment of that amount recorded as part of the closing of the sale of Delvita in the second quarter of 2007.
Group share in net profit amounted to EUR 410.1 million, an increase of 16.5% at actual exchange rates (23.5% at identical exchange rates) compared to 2006. Per share, basic net profit was EUR 4.20 (13.3% more than the EUR 3.71 in 2006) and diluted net profit EUR 4.04 (EUR 3.55 in 2006). Without the one-time debt refinancing charge, net profit grew by 42.3% at identical exchange rates.
The Board of Directors of Delhaize Group will propose at the Ordinary General Meeting of May 22, 2008, the payment of a gross dividend of EUR 1.44 per share. This is an increase of 9.1% versus prior year. After deduction of 25% Belgian withholding tax, the proposed net dividend is EUR 1.08.
Fourth Quarter 2007 Income Statement
In the fourth quarter of 2007, revenues of Delhaize Group amounted to EUR 4.7 billion, a decrease of 3.4% compared to 2006 exclusively due to an 11.0% weaker U.S. dollar versus the euro. Organic revenue growth amounted to 5.5% (4.6% in the fourth quarter of 2006). At identical exchange rates, revenues grew by 5.0% (4.6% in the fourth quarter of 2006), supported by comparable store sales growth of 3.7% in the U.S. and 1.3% in Belgium and by an impressive revenue growth in Greece of 15.2%.
Gross margin increased to 25.2% (25.1% in 2006) due to a better sales mix and margin optimization at Food Lion, partly offset by continued price investments by Hannaford and Sweetbay. Other operating income increased by 39.7% to EUR 35.6 million particularly due to a gain of USD 11.3 million on the disposal of idle property by Hannaford.
Selling, general and administrative expenses increased by 12 basis points to 20.2% of revenues due to an increase in advertising expenses and to a comparison to 2006 which benefited from a positive impact of forfeited accounts in retirement and profit sharing plans. This was partially compensated by reduced expenses after the completion of the conversion work at Sweetbay in the third quarter of 2007. Other operating expenses amounted to EUR 24.3 million, primarily related to the USD 18.6 million (EUR 13.6 million) impairment charge on Sweetbay stores.
Operating margin was strong at 5.2% in the fourth quarter of 2007 (5.5% adjusted for the Sweetbay impairment), compared to 5.4% in 2006. Operating profit amounted to EUR 243.0 million, a decrease of 7.4% due to the weakening of the U.S. dollar and to the impairment charge. At identical exchange rates, operating profit would have increased by 1.6% or 7.2% adjusted for the impairment charge.
Net financial expenses decreased by 20.5% to EUR 53.4 million, as a result of the debt refinancing transaction which occurred in the second quarter of 2007 and of the 11.0% U.S. dollar decline. The effective tax rate decreased from 37.4% to 36.0% in the fourth quarter of 2007 primarily as the result of the favorable impact of the debt refinancing.
Net profit from continuing operations decreased by 0.6% to EUR 121.3 million, or EUR 1.17 basic per share (EUR 1.24 in 2006). At identical exchange rates, net profit from continuing operations would have increased by 7.4%.
In the fourth quarter of 2007, the result from discontinued operations, net of tax, amounted to EUR -1.5 million (EUR -3.6 million in 2006). Group share in net profit amounted to EUR 114.1 million, compared to EUR 114.7 million in the fourth quarter of 2006. Per share, basic net profit was EUR 1.15 (EUR 1.20 in the fourth quarter of 2006) and diluted net profit EUR 1.12 (EUR 1.14 in the fourth quarter of 2006). At identical exchange rates, net profit would have increased by 7.5%.
Full Year 2007 Cash Flow Statement and Balance Sheet
In 2007, net cash provided by operating activities amounted to EUR 932.3 million (EUR 910.3 million in 2006). Capital expenditures increased by 4.2% to EUR 729.3 million (EUR 779.2 million at identical exchange rates) or 3.8% of revenues primarily due to the market renewal program at Food Lion, the conversion of Cash Fresh stores to Delhaize banners and the renewal of distribution centers in Belgium, and an active store opening program throughout the Company. Delhaize Group generated free cash flow of EUR 326.7 million (EUR 215.1 million in 2006). This increase is primarily due to EUR 118.8 million proceeds received in 2007 for the sales of Delvita and Di. At the end of 2007, Delhaize Group held EUR 248.9 million cash and cash equivalents.
The net debt to equity ratio continued to decrease and was 61.0% at the end of 2007 compared to 74.0% at the end of 2006. Delhaize Group’s net debt amounted to EUR 2.2 billion at the end of 2007, a decrease of EUR 390.5 million compared to EUR 2.6 billion at the end of 2006 due to the weakening of the U.S. dollar between the two balance sheet dates, the conversion of a part of the convertible bond in the second quarter of 2007 and the continued generation of free cash flow.
Segment Reporting
· In 2007, the revenues of our operations in the United States grew by 5.1% to USD 18.2 billion (EUR 13.2 billion). Revenue growth was supported by outstanding comparable store sales growth of 3.8%, and, particularly at Food Lion, more store openings.
Revenues in the U.S. in 2007 were supported by the three U.S. operating companies which all demonstrated dynamic revenue growth. At Food Lion, the market renewal program and customer segmentation work continued to bear fruit. Hannaford further achieved strong revenue growth, supported by its competitive pricing and innovative strategy. At Sweetbay, where the final Kash ‘n Karry stores were converted to Sweetbay supermarkets in the summer of 2007, revenue growth of most stores was strong in the second part of 2007.
Delhaize Group finished the year 2007 with 1,570 supermarkets in the U.S. In 2007, Delhaize Group opened or acquired 44 new stores in the U.S. The Company closed 11 stores that were relocated and 12 other stores. This resulted in a net increase of 21 stores, compared to 12 stores in 2006.
In addition in 2007, Delhaize Group remodeled 159 supermarkets in the U.S., including 81 Food Lion renewals and conversions in the Norfolk, Virginia market, and 20 renewals in the Myrtle Beach, South Carolina market. In Norfolk, ten Food Lions were converted to Bottom Dollar stores and 8 to the Bloom banner. The last remaining 30 Kash n’ Karry stores were converted to Sweetbay. At the end of 2007, 106 Sweetbay stores were open.
In 2007, key initiatives undertaken at our U.S. operating companies included:
- at Food Lion, our continued strategy of market renewals, including banner conversions based on successful application of segmentation work;
- at Hannaford, the impressive success of our Guiding Stars program launched in 2006, ongoing proactive investments in price competitiveness and the new store opening program;
- at Sweetbay the conversion of the remaining Kash n' Karry stores to the Sweetbay concept was completed in the summer of 2007 as scheduled, investments in price which stimulated sales began in the summer months, and inventory management and labour expenses improved in the second half of 2007; and
- across our three U.S. operating companies, the development of our three-tier private label program which we expect to deliver strong results in 2008 and the following years.
In 2007, gross margin increased by 20 basis points to 27.4% due to an improvement in the sales mix at Food Lion, primarily through higher fresh and private label sales, margin optimization at Food Lion and excellent inventory loss management at Hannaford. These improvements were partially offset by price investments at Hannaford and Sweetbay.
Selling, general and administrative expenses as a percentage of revenues increased by 16 basis points to 22.0% due to increased payroll expenses, mainly due to the retirement and profit sharing plan adjustments in 2006, higher advertising expenses to support our various initiatives and higher fuel prices.
In 2007, the operating margin of our U.S. business increased by 7 basis points to 5.6% of revenues. The operating profit of the U.S. operations of Delhaize Group crossed the USD 1 billion mark, growing by 6.4% to USD 1.0 billion (USD 961.0 million in 2006).
In the fourth quarter of 2007, U.S. revenues of Delhaize Group grew strongly by 5.1% to USD 4.6 billion (EUR 3.2 billion) supported by the three U.S. operating companies. The operating margin of the U.S. operations of Delhaize Group was again excellent at 5.9% and 6.2% excluding the Sweetbay impairment charge (6.1% in 2006). Operating profit grew by 1.3%.
In the fourth quarter of 2007, an impairment charge of USD 18.6 million was recorded for the adjustment of the carrying value of 25 Sweetbay stores. Excluding this charge, the operating margin of the U.S. operations would have been 6.2% of revenues and operating profit would have grown by 8.3%. This comparison was positively impacted by a USD 11.3 million gain on the disposal of idle property by Hannaford in 2007 and negatively impacted by a USD 19.5 million adjustment to recognize forfeited accounts in retirement and profit sharing plans made in the fourth quarter of 2006.
In 2008, Delhaize Group plans to open between 50 and 55 new supermarkets in the U.S. In addition, the Group plans to close approximately nine stores to be relocated and nine other stores in the normal course of business, resulting in a net increase of 32 to 37 stores to a total number of between 1,602 and 1,607 stores at the end of 2008. This represents a significant step-up in store openings compared with previous years, particularly at Food Lion. Approximately 150 U.S. stores will be remodeled in 2008. Food Lion will remodel 141 stores as part of its market and store renewal programs. Four market renewals are planned by Food Lion for the year 2008: Wilmington, North Carolina; Richmond, Virginia; Charlottesville, Virginia, and Savannah, Georgia.
· In 2007, revenues of Delhaize Belgium increased by 1.7% to EUR 4.4 billion, supported by comparable store sales growth of 1.6%. Excluding the impact of the divestiture of Di, the beauty and body care business, revenues would have grown by 2.9% in 2007. Market share declined by 36 basis points to 25.7% (source: AC Nielsen) due to many competitive openings, particularly of discount stores, and the temporarily disruptive impact of the conversion of Cash Fresh stores to Delhaize banners.
The sales network of Delhaize Belgium was extended by 27 stores to 738 at the end of 2007, including 139 company-operated supermarkets in Belgium, 34 stores in the Grand Duchy of Luxembourg and four stores in Germany. In addition, nine supermarkets were remodeled in Belgium in 2007.
In 2007, gross margin of Delhaize Belgium declined by 11 basis points to 19.7% of revenues due to price investments and the conversion of company-operated Cash Fresh stores to affiliated stores. Selling, general and administrative expenses increased by 18 basis points to 16.5% of revenues due to weak sales momentum. As a result, the operating margin of Delhaize Belgium declined by 19 basis points to 4.1% of revenues and operating profit decreased by 2.7% to EUR 179.0 million.
During the fourth quarter of 2007, revenues of Delhaize Belgium increased by 1.4% to EUR 1.1 billion. Comparable store sales grew 1.3%, showing a recovery compared to the third quarter. Customer traffic was high and sales were strong during the holiday period.
In the fourth quarter, the operating margin of Delhaize Belgium showed an improvement compared to the third quarter of 2007 and amounted to 4.1%. Operating profit decreased by 12.8% to EUR 46.5 million. Excluding the operating profit of Di in the fourth quarter of 2006, operating profit would have decreased by 7.0%, mainly due to the charge related to the conversion of Cash Fresh to Delhaize banner stores.
Delhaize Belgium expects to end 2008 with a store network of between 788 and 793 stores, as a result of the addition of 50 to 55 stores (including three company-operated supermarkets), compared to 42 in 2007. Delhaize Belgium plans to remodel 16 stores in 2008 and convert the remaining Cash Fresh stores to Delhaize banners.
· In 2007, revenues in Greece grew by 13.9% to EUR 1.2 billion due to high comparable store sales growth and many new store openings. Alfa-Beta added 11 stores, bringing its store network to 159 units at year-end. In 2007, gross margin increased by 72 basis points to 22.9%. Selling, general and administrative expenses as a percentage of revenues decreased by 57 basis points to 18.8%. The operating margin of Alfa-Beta grew from 3.2% in 2006 to 4.4% in 2007. This increase is explained by excellent revenue growth, sourcing optimization, lower inventory losses and good cost control. Operating profit increased by a record 56.8% to EUR 51.5 million.
In the fourth quarter of 2007, Greek revenues grew by 15.2% and the operating margin was 5.9% (5.0% in 2006), resulting in an operating profit increase of 37.0% to EUR 19.9 million (EUR 14.5 million in 2006). Market share increased in 2007 by 100 basis points to 13.8% (source: AC Nielsen).
In 2008, the sales network of Alfa-Beta is expected to be extended by 16 new stores, excluding acquisitions. In January 2008, Alfa-Beta entered into an agreement with the German Tengelmann Group to acquire its Greek subsidiary Plus Hellas. The acquisition includes 33 new stores and a new distribution facility in the north of Greece. Including the 33 Plus Hellas stores, the sales network of Alfa-Beta will surpass 200 stores at the end of 2008.
Plus Hellas is a highly complementary fit for Alfa-Beta. Many of the Plus Hellas stores are located in the north of Greece, where Alfa-Beta has currently a limited presence. Plus Hellas also has several new stores in the development pipeline. The Plus stores will be converted to Alfa-Beta banners. The transaction is expected to close in the second quarter of 2008.
· Revenues of the Emerging Markets (Romania and Indonesia) of Delhaize Group increased by 20.9% in 2007 to EUR 165.5 million due to the continued good revenue performance in both countries. The Emerging Markets of Delhaize Group recorded an operating profit of EUR 3.8 million in 2007, a significant improvement compared to the previous year.
In the fourth quarter of 2007, the Emerging Markets of Delhaize Group grew revenues by 18.8% and posted an operating profit of EUR 2.0 million compared to an operating loss of EUR 0.5 million in 2006.
The Emerging Markets sales network of Delhaize Group included 78 supermarkets (22 stores in Romania and 56 in Indonesia) at the end of 2007, ten more than in 2006. In 2008, Delhaize Group expects to increase its sales network by 15 stores in its Emerging Markets to a total of 93 stores.
2008 Financial Outlook
In 2008:
· Delhaize Group plans to end the year with a store network of between 2,691 and 2,701 stores, as a result of the addition of 146 to 156 stores (including 33 Plus Hellas stores to be acquired pending approval by Greek anti-trust authorities)
· Delhaize Group expects capital expenditures (excluding leases) of approximately EUR 775 million at identical exchange rates, including approximately USD 750 million for the U.S. operations of the Group.
In addition, Delhaize Group expects the following financial results for 2008 at identical exchange rates (1 EUR = 1.3705 USD) and excluding the 53rd week in the U.S. and the impact of the planned acquisition of Plus Hellas:
For the U.S. operations of Delhaize Group:
· Comparable store sales growth of 2.5% to 3.5%
For Delhaize Group:
· Revenue growth of 4.0% to 5.5%
· Operating profit growth of 6.0% to 8.0%
· Net financial expenses of approximately EUR 215 million
· An effective tax rate between 34.5% and 35.5%
· Net profit from continuing operations (including minority interests) growth of 25% to 30%
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In 2008, two elements will have an impact on our reported earnings: a 53
rd week in the U.S. and a change in cost allocation policy that will affect our segment reporting. An explanatory note on these two impacts can be found on our website
www.delhaizegroup.com. In 2008, Easter will occur in the first quarter and not in the second quarter (as in 2007), resulting in a positive impact on revenues in the first quarter of 2008 and a negative impact in the second quarter of 2008.
Conference Call and Webcast
Delhaize Group’s management will comment on the fourth quarter and full year 2007 results during a conference call starting March 6, 2008 at 03.00 pm CET / 09:00 am ET. The conference call can be attended by calling
+44 20 7162 0125 (U.K.) or + 32 2 290 14 11 (Belgium) 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 webcast will be available after the conference call at http://www.delhaizegroup.com.
Delhaize Group
Delhaize Group is a Belgian food retailer present in seven countries on three continents. At the end of 2007, Delhaize Group’s sales network consisted of 2,545 stores. In 2007, Delhaize Group posted EUR 19.0 billion (USD 26.0 billion) in revenues and EUR 410.1 million (USD 562.1 million) in net profit (Group share). At the end of 2007, 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 website
http://www.delhaizegroup.com. Questions can be sent to investor@delhaizegroup.com.
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, 2006 and other periodic filings made by Delhaize Group with the U.S. Securities and Exchange Commission, which risk factors are incorporated herein by reference. Delhaize Group disclaims 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.
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