DELHAIZE GROUP 6-K 2006
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 March, 2006
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 Groups Net Profit Increases by 23.4%
to EUR 364.9 Million in 2005
Fourth Quarter 2005 Results
In 2005, we have accelerated sales growth for the third consecutive year while maintaining our strong operating profit margins, said Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group. Food Lion particularly has accelerated sales momentum in the second half of 2005, using ongoing cost control, price leadership and excellent execution to deliver strong results.
Operating profit in the fourth quarter has grown by 26.2% at identical exchange rates, supporting our annual results, continued Pierre-Olivier Beckers. We plan to make 2006 our fourth consecutive year with increased sales growth through many in-store initiatives and more store openings, while maintaining our strong margins through cost control and executional excellence.
FULL YEAR 2005 INCOME STATEMENT
In 2005, net sales and other revenues of Delhaize Group increased by 4.2% to EUR 18.6 billion. Organic sales growth amounted to 2.1%, and net sales and other revenues increased at identical exchange rates by 4.1%, the third consecutive year of accelerating sales growth at identical exchange rates. This was due to:
Delhaize Group ended 2005 with a sales network of 2,636 stores compared to 2,565 stores at the end of 2004. The net increase of 71 stores was the result of 39 net store openings (including selective store closings), the acquisition of 43 Cash Fresh stores in Belgium and the divestiture of 11 Delvita stores in Slovakia.
Gross margin increased to 25.2% of net sales and other revenues (compared to 24.6% in 2004) primarily due to reduced inventory losses at Food Lion, continued margin management and price optimization at Food Lion and Hannaford, and expanded offerings in higher-margin departments. The implementation of the new inventory and margin management system ACIS allowed Food Lion to improve inventory results by USD 65 million in 2005 compared to the pre-ACIS period.
Selling, general and administrative expenses increased to 20.5% of net sales and other revenues (compared to 20.0% in 2004) primarily because of expenses related to the integration of Victory into Hannaford, the conversion of Kash n Karry stores to Sweetbay in Florida, higher utility and fuel prices throughout the Group, an increase in medical costs in the U.S. and a significant statutory increase in labor rates in Belgium. During the second half of 2005, the control over operating expenses improved by the use of strict cost management, the completion of the conversion of Victory stores to the Hannaford banner and lower depreciation and rents. These activities reduced selling, general and administrative expenses as a percentage of sales in the fourth quarter of 2005.
Other operating expenses increased from EUR 31.5 million in 2004 to EUR 44.4 million in 2005. In 2005, other operating expenses included asset impairment charges primarily in relation to Food Lion and Delvita (EUR 11.8 million), the closure of stores in the U.S. in the ordinary course of business (EUR 11.7 million) and losses on the disposal of fixed assets in the U.S. (EUR 18.7 million). The losses on the disposal of fixed assets were primarily related to the store closings and the market renewal activity by Food Lion. In 2005, Food Lion closed 32 stores in the ordinary course of business compared with 10 stores in 2004.
Delhaize Group maintained its operating margin at 4.8% of net sales and other revenues. Operating profit increased by 4.0% to EUR 898.0 million (also +4.0% at identical exchange rates) on the back of stronger sales and gross margin.
Net financial expenses decreased by 2.5% to EUR 300.8 million. While finance costs remained almost stable in 2005, income from investments grew to EUR 26.2 million as a result of more cash on hand and higher short-term interest rates.
The effective tax rate increased from 36.2% to 37.4%, including for both years the tax charge recorded as a result of the settlement reached with the Greek tax authorities at the end of 2005 by our Greek subsidiary Alfa-Beta. The increase is explained by the receipt of USD 5.6 million in interest on a U.S. tax refund in 2004, the increase in tax expense related to share based compensation in 2005, and taxes on increased dividends paid by Delhaize America to the parent company in 2005. These amounts were partially offset by the favorable resolution of state audits at our U.S. subsidiaries in 2005.
Net profit from continuing operations increased by 5.5% to EUR 373.6 million, or EUR 3.93 per basic share. The result from discontinued operations amounted to EUR -3.8 million compared to EUR -52.3 million the previous year. Discontinued operations include the Thai operations (divested on September 1, 2004), the Slovak operations (sold on June 30, 2005) and certain Kash n Karry stores closed in the first quarter of 2004.
In 2005, net profit increased by 23.4% to EUR 364.9 million. Per share, basic net earnings was EUR 3.89 (EUR 3.19 in 2004), an
increase of 21.8% and diluted net earnings EUR 3.71 (EUR 3.09 in 2004), an increase of 20.0%. The Board of Directors of Delhaize Group will propose at the Ordinary General Meeting of May 24, 2006, the payment of a gross dividend of EUR 1.20 per share. This is an increase of 7.1% versus prior year. After deduction of 25% Belgian withholding tax, the proposed net dividend is EUR 0.90.
FOURTH QUARTER 2005 INCOME STATEMENT
In the fourth quarter of 2005, net sales and other revenues of Delhaize Group increased by 12.1% to EUR 5.0 billion supported by a 9.2% stronger U.S. dollar rate. Organic sales growth amounted to 3.4%, and net sales and other revenues increased at identical exchange rates by 5.3%, supported by strong comparable store sales growth of 2.5% in the U.S., and by the inclusion of results from Victory Supermarkets, acquired in November 2004, and Cash Fresh, acquired in May 2005.
Gross margin increased by 84 basis points to 25.2%, while selling, general and administrative expenses improved by 12 basis points to 19.9% of sales. Gross margin increased because of better inventory results at Food Lion and Delhaize Belgium and continued margin management and price optimization at Food Lion and Hannaford. Strong sales, continued cost management and lower depreciation and rents due to store closings, lease adjustments and fully depreciated assets more than offset the impact of expenses related to the Sweetbay conversions, higher utility and fuel expenses throughout the Group and the negative effect of three strike days and statutory labor rate increases in Belgium.
In the fourth quarter of 2005, Delhaize Groups other operating expenses amounted to EUR 21.7 million, including impairment charges of EUR 11.8 million primarily in relation to Food Lion and Delvita, and losses amounting to EUR 7.5 million on the disposal of fixed assets in the U.S.
Operating margin increased nearly a full percentage point to 5.3% in the fourth quarter of 2005 (4.4% in the fourth quarter of 2004) due to the improvements in gross margin and operating expenses. Operating profit amounted to EUR 262.0 million, an increase of 33.9%.
Net financial expenses were almost unchanged at EUR 78.8 million. The effective tax rate decreased from 38.6% to 33.7% due to the positive impact of favorable state audit resolution at Food Lion and Hannaford in the U.S.
In the fourth quarter of 2005, Alfa Beta reached an agreement with the Greek tax authorities to settle a tax audit on Trofo and ENA for certain years before the acquisition of these two entities by Alfa-Beta in early 2001. Delhaize Group has recorded the settlement in its opening balance sheet of 2003 as a EUR 10.8 million increase of goodwill and a EUR 1.2 million decrease of Group equity. In addition, a tax charge was recorded: EUR 1.9 million in 2003, EUR 8.2 million in 2004 (incl. EUR 5.7 million in the fourth quarter) and EUR 1.0 million in the fourth quarter of 2005.
In the fourth quarter of 2005, net profit amounted to EUR 117.0 million, an increase of 74.5% compared with 2004. At identical exchange rates, net profit would have increased by 66.7%.
FULL YEAR 2005 CASH FLOW STATEMENT AND BALANCE SHEET
In 2005, net cash provided by operating activities amounted to EUR 902.3 million. Capital expenditures increased to EUR 636.1 million (EUR 494.1 million in 2004) primarily due to the conversion of Victory stores, the continued Sweetbay rollout, the market renewal program at Food Lion, new store openings and a new distribution center for fresh products in Belgium. Delhaize Group generated free cash flow of EUR 309.7 million before the EUR 160.8 million acquisition of Cash Fresh.
At the end of 2005, Delhaize Group held EUR 804.9 million in cash and cash equivalents, anticipating major debt repayments maturing in the first half of 2006. The net debt to equity ratio decreased to 81.4% at the end of 2005 compared to 90.6% at the end of 2004. Delhaize Groups net debt amounted to EUR 2.9 billion at the end of 2005, an increase of EUR 334.7 million compared to EUR 2.6 billion at the end of 2004 primarily as a result of the strengthening of the U.S. dollar between the two balance sheet dates.
In February 2006, Delhaize Group paid off a 5.5% EUR 150 million Eurobond, using a combination of cash on hand, existing credit facilities and the proceeds from an issuance of EUR 50 million in Medium Term Notes in November 2005.
Delhaize Group finished the year 2005 with 1,537 supermarkets in the U.S. During 2005, Delhaize Group opened or acquired 42 new stores in the U.S., including 11 relocated stores, resulting in an increase of 14 stores, net of 17 store closings. In addition, in 2005, Delhaize Group remodeled and expanded 176 supermarkets in the U.S., including 19 Victory stores converted to the Hannaford banner and 14 Kash n Karry stores converted to the Sweetbay banner. Twelve Food Lion stores were converted to Harveys.
In 2005, Food Lion renewed two of its markets. The market renewal in Greensboro, North Carolina, was launched in June, and in October Food Lion launched a market renewal in Baltimore, Maryland. Customers reacted enthusiastically to both market renewals, resulting in major improvements in sales and perception scores. In addition, after one year of testing on the basis of extensive customer feedback, Food Lion introduced major enhancements to its Bloom stores, particularly in its fresh and specialty assortments. In addition, three test stores were launched 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.
During the first nine months of 2005, Hannaford integrated the 19 acquired Victory supermarkets, converting all stores to the Hannaford banner. During the conversion work, sales in the former Victory stores were soft, but in the fourth quarter, sales trends improved supported by a major marketing campaign to reinforce the Hannaford brand in the Massachusetts market. Fourteen Kash n Karry stores were converted to Sweetbay Supermarket in 2005. At the end of 2005, 25 stores operated under the Sweetbay banner, and the sales results in these stores continued to be strong.
In 2005, the gross margin of the U.S. operations of Delhaize Group improved by 56 basis points to 27.2%, primarily due to continued margin management and price optimization at Food Lion and Hannaford, reduced inventory losses at Food Lion and
the expanded offerings in higher-margin departments such as produce, deli and bakery. Selling, general and administrative expenses increased as a percentage of sales by 33 basis points to 21.7% driven by expenses related to the integration of Victory in Hannaford and the conversion of Kash n Karry stores to Sweetbay, higher medical costs, and rising utility and fuel expenses.
In 2005, the operating margin of the U.S. operations amounted to 5.4% (5.3% in 2004) of net sales and other revenues. The operating profit of the U.S. business of Delhaize Group increased by 7.2% to USD 901.1 million.
During the fourth quarter of 2005, the operating margin of the U.S. business of Delhaize Group increased by 137 basis points to 6.2% due to a higher gross margin and lower operating expenses as a percentage of sales. Operating profit grew by 35.1%. Gross margin went up because of better inventory results at Food Lion and the optimization of pricing at Food Lion and Hannaford. Strong sales and strong cost management more than offset the impact of expenses related to the Sweetbay conversions, increased medical expenses and higher utility and fuel expenses.
In 2006, Delhaize Group expects to open 54 new supermarkets in the U.S., including nine stores under the Bloom and Food Lion banners in the new market of Greenville-Spartanburg, South Carolina, 14 new Hannaford stores and nine relocated stores. Delhaize Group plans to close 19 stores in the U.S., resulting in a net increase of 26 stores to a total number at the end of 2006 of 1,563 stores. Furthermore, six Food Lion stores will be converted to the Harveys banner. In total, the selling area of the U.S. businesses is expected to grow by 2.3% net compared with a 1.6% net increase in 2005.
Approximately 158 U.S. stores will be remodeled or expanded in 2006. A market renewal in the Washington, DC, area, will be completed in the second half of 2006. Food Lion will use its two new banners Bloom and Bottom Dollar together with the Food Lion banner in the renewal of the Washington market. In 2006, all Kash n Karry operations in the markets of Tampa/St. Petersburg will be re-launched under the Sweetbay Supermarket brand and two new stores will be opened, adding 48 supermarkets under the Sweetbay banner.
In 2005, Delhaize Belgium extended its sales network by 61 stores, 43 of which were Cash Fresh stores acquired in May 2005, for a total of 808 at year-end, including 29 stores in the Grand Duchy of Luxembourg and two stores in Germany. In addition, 15 supermarkets were remodeled in Belgium in 2005.
In 2005, the operating margin of Delhaize Belgium decreased to 4.6% of net sales and other revenues. Gross margin went up by 57 bps to 20.0% due to a better sales mix and improved buying conditions, while selling, general and administrative expenses (excluding other operating expenses) increased by 113 basis points as a percentage of sales to 16.1%, mainly as a result of weaker than expected sales, statutory increases in labor rates and higher energy expenses. Operating profit decreased by 5.4% to EUR 182.7 million.
During the fourth quarter of 2005, the operating margin of Delhaize Belgium declined to 4.0%, mainly due to softer than expected sales, the negative impact of three days of strikes and higher operating expenses that resulted from mandatory salary rate increases and higher energy prices. As a consequence, operating profit declined by 9.0% to EUR 43.4 million.
In 2006, 38 stores, including three company-operated supermarkets will be added to the sales network of Delhaize Belgium, bringing the total to 846 stores at the end of 2006. Delhaize Belgium plans to remodel eight stores in 2006. In addition, Delhaize Belgium will start the conversion of Cash Fresh stores to Delhaize banners and continue the enlargement of its distribution center facilities.
to EUR 24.2 million, or 2.7% of net sales and other revenues.
In 2005, Delhaize Group increased its number of stores in Greece by six to a total of 135 stores. In 2006, the sales network of Alfa-Beta is expected to be extended by 19 stores, including nine company-operated stores. This will bring the total to 154 stores in Greece.
In the fourth quarter of 2005, Delhaize Group took advantage of opportunities to buy 1.1 million shares of Alfa-Beta, increasing its total shareholding in its Greek subsidiary by 8.7 percentage point from 51.9% to 60.6%.
The sales network of Delhaize Group in its Emerging Markets included 156 stores at year-end, a reduction compared to 166 stores at year-end 2004 as a consequence of the divestiture of the Slovak operations in 2005. Of the 156 stores, 94 were located in the Czech Republic, 16 in Romania and 46 in Indonesia. In 2006, Delhaize Group expects to increase its sales network in its Emerging Markets by 13 stores to a total of 169 stores.
2006 FINANCIAL OUTLOOK
For 2006, Delhaize Group expects the following financial results at identical exchange rates (1 EUR = 1.2441 USD):
For 2006, Delhaize Group expects 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.
Conference Call and Webcast
Delhaize Groups management will comment on the 2005 results during a conference call starting March 15, 2006 at 03.00 p.m. CET / 09:00 a.m. EST. The conference call can be attended by calling + 44 (0) 20 7162 0025 (U.K.), + 1 334 323 6201 (U.S.) or + 32 (0) 2 290 1407 (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 is a Belgian food retailer present in eight countries on three continents. At the end of 2005, Delhaize Groups sales network consisted of 2,636 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 firstname.lastname@example.org.
Summary Income Statement
Earnings per Share
Summary Balance Sheet
Summary Cash Flow Statement
Summary Changes in Shareholders Equity (1)
Supplementary Information (Unaudited)
Number of Stores (1)
Organic Sales Growth Reconciliation (unaudited) (1)
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.
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 IFRSpreliminary financial information, to be found on Delhaize Groups website. These documents included a preliminary reconciliation of the quarterly results of 2004 from Belgian GAAP to IFRS.
In the meantime, Delhaize Group adjusted the preliminary reconciliation to take into consideration a tax settlement with the Greek authorities (see press release of February 28, 2006 on Delhaize Groups website), adjustments related to accounting of finance leases and a reclassification in the fourth quarter of 2004 in the cash flow statement between interests paid and changes in operating assets and liabilities.
Report of the Statutory Auditor
The statutory auditor Deloitte Reviseurs dEntreprises SCC, represented by Mr. Philip Maeyaert, issued, on March 14, 2006, an unqualified opinion on the annual consolidated financial statements of Delhaize Group for the year ended December 31, 2005. The annual financial information included in the press release is in accordance with the annual financial statements approved by the Board
of Directors on March 14, 2006.
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 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.
Additional Quarterly Segment Information
Below you find additional information on the evolution of gross margin and Selling, General and Administrative expenses as a percentage of net sales and other revenues for the U.S. and Belgian operations during the fourth quarter of 2005 compared to the fourth quarter of 2004.
DELHAIZE AMERICA, INC.
Unaudited Condensed Consolidated Financial Statements*
for the Fourth Quarter and Fiscal Year Ended December 31, 2005
TABLE OF CONTENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the 13 weeks and 52 Weeks ended December 31, 2005 and January 1, 2005
(Dollars in millions)
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 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.