DELHAIZE GROUP 6-K 2005
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of November, 2005
Commission File Number: 333-13302
ETABLISSEMENTS DELHAIZE FRÈRES
ET CIE LE LION (GROUPE DELHAIZE)
(Exact name of registrant as specified in its charter)*
DELHAIZE BROTHERS AND CO.
THE LION (DELHAIZE GROUP)
(Translation of registrants name into English)*
RUE OSSEGHEM 53
B-1080 BRUSSELS, BELGIUM
(Address of principal executive offices)
* The registrants charter (articles of association) specifies the registrants name in French, Dutch and English.
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
Table of Contents
Delhaize Group Reports Net Profit of EUR 89.7 million
in Third Quarter 2005
Third Quarter 2005 Results
Full Year 2005 Guidance
In the third quarter, we have seen that our initiatives to further differentiate our store concepts and improve our execution have resulted in accelerated sales and earnings momentum compared to the second quarter of 2005, particularly at Food Lion, our largest banner, said Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group. However, expenses related to long-term strategic initiatives such as the Victory and Sweetbay conversions and higher energy price, continued to impact negatively our operating margin, and the sales performance in Belgium remained weak due to soft consumer spending.
In spite of continuing difficult market conditions in Belgium and higher energy prices, we believe operating profit will increase by 2 to 4% in 2005. Further, we confirm our sales and net earnings guidance of respectively 3.5 to 4.5% growth and 15 to 20% growth in 2005, concluded Mr. Beckers.
In the third quarter of 2005, net sales and other revenues of Delhaize Group increased by 5.1% to EUR 4.7 billion. Organic sales growth amounted to 2.4%, and net sales and other revenues increased at identical exchange rates by 5.0% due to:
Delhaize Group ended the third quarter of 2005 with a sales network of 2,629 stores compared to 2,614 stores at the end of June 2005.
The gross margin increased to 25.3% of net sales and other revenues (compared to 25.0% in the third quarter of 2004) primarily due to lower inventory shrinkage at Food Lion and margin improvements at Hannaford and Delhaize Belgium.
Selling, general and administrative expenses increased to 20.8% of net sales and other revenues (compared to 20.2% in the third quarter of 2004) primarily because of expenses related to the integration of Victory into Hannaford and the conversion of Kash n Karry stores to Sweetbay in Florida in advance of expected sales benefits. Utility and fuel prices were higher throughout the Group, medical costs increased in the U.S., and there was a significant statutory increase in labor rates in Belgium.
Other operating expenses decreased to EUR 8.7 million, primarily due to the limited impact from hurricanes in comparison with last year, partially offset by higher store closing charges and losses on the planned disposal of fixed assets in the U.S.
The operating margin of Delhaize Group decreased by 24 basis points but remained strong at 4.7% of net sales and other revenues. The margin decrease was significantly smaller than the 70 basis point decrease encountered in the second quarter of 2005. Operating profit was even with prior year at EUR 225.0 million.
Net financial expenses were little changed at EUR 77.0 million. The effective tax rate increased from 36.3% to 38.1% due to increased state tax accruals in the U.S. and a tax assessment paid at a Dutch financial subsidiary.
Net profit from continuing operations decreased by 2.9% to EUR 91.6 million, or EUR 0.96 per basic share. The result from discontinued operations amounted to EUR -1.0 million compared to EUR -3.1 million the previous year. Discontinued operations include the Thai operations (divested since September 1, 2004), the Slovak operations (sold on June 30, 2005) and Kash n Karry stores closed in the first quarter of 2004.
In the third quarter of 2005, net profit decreased by 1.0% to EUR 89.7 million. Per basic share, net profit was EUR 0.95 (EUR 0.98 in the third quarter of 2004) and per diluted share EUR 0.91 (EUR 0.93 in the third quarter of 2004). At identical exchange rates, net profit would have decreased by 0.6%.
CASH FLOW STATEMENT AND BALANCE SHEET
In the third quarter of 2005, net cash provided by operating activities amounted to EUR 247.5 million. Capital expenditures increased to EUR 155.6 million (EUR 136.5 million in the third quarter of 2004) primarily due to the conversion of Victory stores, the continued Sweetbay roll-out, the market renewal program at Food Lion, more store openings and a new distribution center for fresh products in Belgium. Delhaize Group generated free cash flow of EUR 117.2 million and held EUR 691.2 million cash and cash equivalents at the end of the third quarter.
The net debt to equity ratio decreased to 85.5% at the end of September 2005 compared to 90.5% at the end of 2004. Delhaize Groups net debt amounted to EUR 2.9 billion at the end of September 2005, an increase of EUR 322.6 million compared to EUR 2.6 billion at the end of 2004 primarily due to the strengthening of the U.S. dollar between the two balance sheet dates.
During the third quarter of 2005, comparable store sales increased by 1.6%, a considerable acceleration compared to the first half of 2005. Food Lion enjoyed improving sales momentum throughout the third quarter due to effective price, promotion and marketing initiatives, better execution in its stores, the successful re-launch of the Greensboro market in June and store closings by Winn-Dixie, a major competitor in the Southeast of the U.S. Hannaford and Sweetbay continued to perform well, and sales at Kash n Karry and Harveys were weak due to the competitive activity and unfavorable comparisons to periods of greater hurricane activity in 2004 in our territories.
The gross margin improved by 11 basis points, primarily due to lower inventory shrinkage at Food Lion and margin improvements at Hannaford. Selling, general and administrative expenses increased as a percentage of sales by 45 basis points due to higher utility and fuel expenses and expenses related to the integration of Victory in Hannaford and the launch of Sweetbay. Other operating expenses decreased because of the limited impact of hurricanes compared with prior year, partially offset by losses on the planned disposal of fixed assets and closed store expenses.
The operating margin of the U.S. operations amounted to 5.4% (5.6% in 2004) of net sales and other revenues. The operating profit of the U.S. business of Delhaize Group increased by 0.4% to USD 226.2 million.
In the third quarter of 2005, Delhaize Group opened 14 new supermarkets in the U.S., including four relocated stores, and closed three stores, resulting in a net increase of seven stores. In addition, three Food Lion stores were converted to the Harveys banner.
In June, Food Lion launched its market renewal in Greensboro, North Carolina, including 58 remodeled stores. This third market renewal had the best start since the launch of this program in 2003 with strong sales growth driven by new customers and an increase in the average sales per customer. In early October, Food Lion re-launched its second market renewal of the year, in Baltimore, Maryland. For 2006, Food Lion has identified Washington market as its next renewal. Next year, Food Lion will enter a completely new market, Greenville-Spartanburg in South Carolina.
After one year of testing and on the basis of extensive customer feedback, Food Lion has recently introduced major improvements to its Bloom stores, particularly in its fresh and specialty assortments. In September-October,
Food Lion launched three test stores under the banner Bottom Dollar, a new deep discount concept combining highly competitive prices with an offer of more than 6,500 products, including many fresh products. Customer response was very positive on both initiatives. Food Lion is evaluating the use of these two banners Bloom and Bottom Dollar together with the Food Lion and Harveys banners for its different customer segments and marketplaces.
During the third quarter, Hannaford completed the integration of the 19 acquired Victory supermarkets, with nine Victory stores converted in the third quarter to the Hannaford banner. Sales were soft in the former Victory stores due to the conversion work. In October, Hannaford launched a major marketing campaign to reinforce the Hannaford brand in the Massachusetts market.
Three Kash n Karry stores were converted to the Sweetbay Supermarket concept in the third quarter of 2005. At the end of September, 20 Sweetbay stores were in operation, and the sales results continued to be strong. Five additional stores will be converted or opened under the Sweetbay banner by the end of 2005. The Sarasota/Bradenton market is nearly converted, and the Tampa/St. Petersburg market will be fully converted in 2006.
The operating margin of Delhaize Belgium decreased to 4.2% of net sales and other revenues, due to weak sales, the statutory increase in labor rates and higher energy expenses. Operating profit decreased by 2.0% to EUR 42.3 million.
Alfa-Beta has been subject to a tax audit in Greece at Trofo and ENA for certain years before the acquisition in 2001 of these two entities by Alfa-Beta. The Company will contest the findings associated with the audit. No provision has been made at this time.
2005 FINANCIAL OUTLOOK
On the basis of our results of the first nine months of 2005 and our expectations for the remainder of the year, Delhaize Group expects the following financial results for 2005 at identical exchange rates (1 EUR = 1.2439 USD):
This earnings outlook is based on the confidence that Delhaize Groups fourth quarter 2005 results will be supported by continued good sales at Food Lion, the positive impact of the Cash Fresh acquisition in Belgium and a better sales trend and lower expenses at the former Victory stores. The results of the last quarter of 2005 will benefit from a relatively lower base of comparison with the same period last year.
This outlook is under IFRS, to compare with the 2004 IFRS financial results indicated in the documents Delhaize Group: Transition to IFRS - preliminary financial information, published on May 4, 2005 and June 29, 2005 and available on Delhaize Groups website.
Conference Call and Webcast
Delhaize Groups management will comment on the third quarter results during a conference call starting November 10, 2005 at 03.00 p.m. CET / 09:00 a.m. EST. The conference call can be attended by calling + 44 (0) 20 7019 0810 (U.K.) or + 1 773 681 5870 (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 web cast will be available after the conference call at http://www.delhaizegroup.com.
Delhaize Group is a Belgian food retailer present in eight countries on three continents. At the end of September 2005, Delhaize Groups sales network consisted of 2,629 stores. In 2004, Delhaize Group posted EUR 17.9 billion (USD 22.2 billion) in net sales and other revenues and EUR 299.8 million (USD 372.9 million) in net profit. At the end of 2004, 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 web site http://www.delhaizegroup.com. Questions can be sent to email@example.com.
Summary Income Statement (Unaudited)
Earnings per Share (Unaudited)
Summary Balance Sheet (Unaudited)
Summary Cash Flow Statement (Unaudited)
Summary Changes in Shareholders Equity (Unaudited)
Supplementary Information (Unaudited)
Number of Stores (1)
- the acquisition of 19 Victory supermarkets consolidated from November 26, 2004;
- the acquisition of 43 Cash Fresh stores consolidated from May 31, 2005;
- the divestiture of 36 Food Lion Thailand stores, since September 1, 2004; and
- the sale of 11 Delvita stores in Slovakia on June 30, 2005.
Organic Sales Growth Reconciliation
Free Cash Flow Reconciliation
Net Debt Reconciliation
Identical Exchange Rates Reconciliation
This press release has been prepared on the basis of International Financial Reporting Standards (IFRS) recognition and measurement principles issued by the International Accounting Standards Board (IASB) and interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC) effective for 2005 reporting. These rules are subject to ongoing review and interpretations by the IASB and IFRIC. As a result, the Group may need to review some accounting treatments used for the purpose of this publication prior to the preparation of the first complete set of IFRS financial statements for the year ended December 31, 2005.
More information on the implications for Delhaize Group of the change in reporting standards from Belgian GAAP to IFRS was made available on May 4, 2005 and June 29, 2005, in the documents Delhaize Group: Transition to IFRS - preliminary financial information, to be found on Delhaize Groups website. These documents include a reconciliation of the quarterly results of 2004 from Belgian GAAP to IFRS.
REPORT OF THE STATUTORY AUDITOR
Deloitte has conducted a limited review of the interim consolidated financial information as at September 30, 2005. 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.
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
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 forward-looking statements generally can be identified as statements that include phrases such as guidance, outlook, projected, believe, 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 Groups Annual Report on Form 20-F for the year ended December 31, 2004 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.
DELHAIZE AMERICA, INC.
for the Third Quarter Ended October 1, 2005
TABLE OF CONTENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the 13 weeks and 39 Weeks ended October 1, 2005 and October 2, 2004
(Dollars in millions)
Costs of goods sold and selling and adminstrative expenses for the 13 weeks ended October 1, 2005 includes $0.3 million (0.01% of sales) and $0.8 million (0.02% of sales), respectively, in costs associated with the storms in the third quarter of fiscal 2005.
Costs of goods sold and selling and adminstrative expenses for the 13 weeks ended October 2, 2004 includes $5.4 million (0.14% of sales) and $5.3 million (0.13% of sales), respectively, in costs associated with the five named storms in the third quarter of fiscal 2004.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of October 1, 2005 and January 1, 2005
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.