Analysts’ Meeting 2002 Annual Results Delhaize Group Brussels - March 13, 2003.
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Transcript of Analysts’ Meeting 2002 Annual Results Delhaize Group Brussels - March 13, 2003.
Analysts’ Meeting
2002 Annual ResultsDelhaize Group
Brussels - March 13, 2003
2
Safe Harbor
“This presentation includes forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statements based on a number of factors. Delhaize Group assumes no obligation to update the information contained in this presentation.”
3
Summary
Financial Results 2002Craig Owens, CFO of Delhaize Group
Accomplishments in 2002 and Priorities ofDelhaize Group for 2003
Pierre-Olivier Beckers, CEO of Delhaize Group
Strategic Sales and Cost Initiatives at Food LionRick Anicetti, CEO of Food Lion
Financial Results 2002
Craig Owens, CFO of Delhaize Group
5
Highlights 2002 Results
Continued organic sales growth
Strong operating margins
Growth in reported earnings per share
High free cash flow
Significant dollar impact
6
(in millions) 2002 2001 % Change
United States USD 15,020 15,141 -0.8%
of which Delhaize America USD 15,020 14,891 +0.9%
Belgium EUR 3,420 3,213 +6.5%
Southern and Central Europe EUR 1,666 1,091 +6.9%
Asia EUR 218 187 +16.6%
Delhaize Group EUR 20,688 21,396 -3.3% *
(in millions) 2002 2001 % Change
United States USD 15,020 15,141 -0.8%
of which Delhaize America USD 15,020 14,891 +0.9%
Belgium EUR 3,420 3,213 +6.5%
Southern and Central Europe EUR 1,666 1,091 +6.9%
Asia EUR 218 187 +16.6%
Delhaize Group EUR 20,688 21,396 -3.3% *
Delhaize Group 2002 Sales
* Organic sales growth of + 2.1%
7
2002 2001
United States 8.4% 8.6%
Belgium 5.3% 5.4%
Southern and Central Europe 4.2% 4.3%
Asia 1.0% 1.2%
Delhaize Group 7.4% 7.7%
2002 2001
United States 8.4% 8.6%
Belgium 5.3% 5.4%
Southern and Central Europe 4.2% 4.3%
Asia 1.0% 1.2%
Delhaize Group 7.4% 7.7%
EBITDA Margin
8
Income Statement
(in millions EUR) 2002 2001 % Change
Sales 20,688 21,396 -3.3%
EBITDA 1,535 1,649 -6.9%
Depreciation (549) (561) -2.2%
Amortization of goodwill and intangibles (176) (158) +11.5%
Operating profit 807 921 -12.4%
(in millions EUR) 2002 2001 % Change
Sales 20,688 21,396 -3.3%
EBITDA 1,535 1,649 -6.9%
Depreciation (549) (561) -2.2%
Amortization of goodwill and intangibles (176) (158) +11.5%
Operating profit 807 921 -12.4%
9
Income Statement
(in millions EUR) 2002 2001 % Change
Operating profit 807 921 -12.4%
Financial expense (455) (464) -2.0%
Exceptional expense (12) (96) -85.6%
Income taxes (160) (192) -16.8%
Tax rate 47.0% 53.2% -
Minority interests (2) (19) -91.8%
Reported earnings 178 149 +19.3%
Cash earnings 336 339 -0.8%
(in millions EUR) 2002 2001 % Change
Operating profit 807 921 -12.4%
Financial expense (455) (464) -2.0%
Exceptional expense (12) (96) -85.6%
Income taxes (160) (192) -16.8%
Tax rate 47.0% 53.2% -
Minority interests (2) (19) -91.8%
Reported earnings 178 149 +19.3%
Cash earnings 336 339 -0.8%
10
(in EUR) 2002 2001 % Change
Reported earnings 1.94 1.88 +3.0%
Cash earnings 3.65 4.26 -14.4%
Average number of shares 92,068 79,494 +15.8%(000)
Gross dividend 0.88 1.44 -38.9%Net dividend 0.66 1.08 -38.9%
(in EUR) 2002 2001 % Change
Reported earnings 1.94 1.88 +3.0%
Cash earnings 3.65 4.26 -14.4%
Average number of shares 92,068 79,494 +15.8%(000)
Gross dividend 0.88 1.44 -38.9%Net dividend 0.66 1.08 -38.9%
Per Share Information
11
Results at Actual and at Identical Exchange Rates
Actual Identical Exchange Rates Exchange Rates
Sales -3.3% +0.7%
EBITDA -6.9% -2.5%
Operating profit -12.4% -7.9%
Reported earnings +19.3% +27.8%
Cash earnings -0.8% +4.0%
Reported earnings per share +3.0% +10.3%
Cash earnings per share -14.4% -10.2%
Actual Identical Exchange Rates Exchange Rates
Sales -3.3% +0.7%
EBITDA -6.9% -2.5%
Operating profit -12.4% -7.9%
Reported earnings +19.3% +27.8%
Cash earnings -0.8% +4.0%
Reported earnings per share +3.0% +10.3%
Cash earnings per share -14.4% -10.2%
Dollar weakening by 5.3% on average in 2002(1 EUR = 0.9456 USD in 2002 compared to 1 EUR = 0.8956 USD in 2001)
12
Final results 2002: cash EPS -10.2% at identical exchange rates instead of expected -20% to -25% due to: Better than expected sales at Food Lion and in
Belgium in December 2002 Higher than expected EBITDA margins at Food Lion
and in Belgium due to aggressive cost control Tax rate lower because of:
- Improved pre-tax income versus non-deductible amortization of goodwill and intangibles- Adjustment to deferred tax liability to reflect Belgian tax rate reduction in 2003
Better than Expected Results
13
Highlights Cash Flow Statement
(in millions EUR) 2002 2001
Net earnings 179.8 168.8
Adjustments for non-cash items 1,291.0 1,302.5
Working capital improvement 43.4 70.1
Net cash provided by 1,036.8 1,208.5operating activities
Capital expenditures (634.9) (553.6)
Purchase of shares in consolidated companies (13.3) (69.9)
Dividends (135.8) (144.4)
Free cash flow 300.2 455.8
(in millions EUR) 2002 2001
Net earnings 179.8 168.8
Adjustments for non-cash items 1,291.0 1,302.5
Working capital improvement 43.4 70.1
Net cash provided by 1,036.8 1,208.5operating activities
Capital expenditures (634.9) (553.6)
Purchase of shares in consolidated companies (13.3) (69.9)
Dividends (135.8) (144.4)
Free cash flow 300.2 455.8
14
Working Capital Improvementsat Delhaize America
2002 2001 2000 1999 1998
Trade receivables days 3.5 4.9 5.2 7.0 7.1
Inventory days on hand 44.9 42.8 47.5 57.8 58.2
Trade payable days 24.9 22.8 25.8 25.5 25.5
(in millions of USD)
Working capital change 55.7 35.8 93.3 (41.0) (130.7)
2002 2001 2000 1999 1998
Trade receivables days 3.5 4.9 5.2 7.0 7.1
Inventory days on hand 44.9 42.8 47.5 57.8 58.2
Trade payable days 24.9 22.8 25.8 25.5 25.5
(in millions of USD)
Working capital change 55.7 35.8 93.3 (41.0) (130.7)
Receivables + inventory + accounts payables
15
Uses of Free Cash Flow
(in millions EUR)
InflowFree cash flow 300.2
OutflowRepayment short-term loans (85.2)Repayment long-term loans (120.2)Buyback own shares, net of stock options exercise (8.5)Cash movement before translation 86.3Foreign exchange translation difference (53.3) (on cash portion)
Net increase of cash - balance sheet 33.0
(205.4)
16
Net Debt Delhaize Group
In millions of EUR
2,000
3,000
4,000
5,000
4,775.9
3,897.8
+45.3 +4.7(636.4)
(205.4)
(86.3)
OtherCapitalleases
Netexchange
differences
Netrepayment
of debt
Cash movement
Net debt31/12/02
Net debt31/12/01
17
109%
127%
160%
71%
51%
1998 1999 2000 2001 2002
Net Debt to Equity Ratio
18
Debt Maturity Profile Delhaize Group
0
200
400
600
800
1,000
1,200
(in
millio
ns o
f E
UR
)
Delhaize America
Other
28 14
753
157 189
1,049
117
815
491
Revolving 5.2% 7.4% 7.0% 7.5% 5.3% 8.1% 8.0% 9.0% Credit 2003 2004 2005 2006 2007 2008-2010 2011 2012-2030 2031
19
Outlook 2003
(in millions of EUR)EUR 1 =
USD 0.94EUR 1 =
USD 1.09
Sales 21,000-21,300 18,800-19,100
Reported earnings 150-185 130-150
Earnings before amortizationof goodwill and intangibles andexceptional items 320-350 285-305
(in millions of EUR)EUR 1 =
USD 0.94EUR 1 =
USD 1.09
Sales 21,000-21,300 18,800-19,100
Reported earnings 150-185 130-150
Earnings before amortizationof goodwill and intangibles andexceptional items 320-350 285-305
20
Outlook 2003
97 new stores (+ 3.9%) to 2,617 stores
Comparable store sales growth of Delhaize America:
between -2.0% and flat
USD 1 billion free cash flow Delhaize America (2001-2003)
Net debt to equity ratio of approximately 100% at the end of
2003
21
Outlook 2003
(in millions of EUR) 2003 2002
Capital expenditures 650 635
Depreciation and amortization 740-750 725
Financial charges ± 455 455
Average tax rate on earnings before non-deductible expense ± 38% * 36.8%
(in millions of EUR) 2003 2002
Capital expenditures 650 635
Depreciation and amortization 740-750 725
Financial charges ± 455 455
Average tax rate on earnings before non-deductible expense ± 38% * 36.8%
(At identical exchange rates)
Outlook 2003
(in millions of EUR) 2003 2002
Capital expenditures 650 635
Depreciation and amortization 740-750 725
Financial charges ± 455 455
Average tax rate on earnings before non-deductible expense ± 38% * 36.8%
(in millions of EUR) 2003 2002
Capital expenditures 650 635
Depreciation and amortization 740-750 725
Financial charges ± 455 455
Average tax rate on earnings before non-deductible expense ± 38% * 36.8%
(At identical exchange rates)
* Non-deductible expense is estimated to be approximately EUR 90 million in 2003
Accomplishments in 2002 and Priorities of Delhaize Group for 2003
Pierre-Olivier Beckers, CEO of Delhaize Group
23
Accomplishments in a Challenging Year
Strong sales at Delhaize Belgium and Alfa-Beta Confirmation of success of Hannaford Aggressive cost management in the second half of 2002 Reorientation of Food Lion to a sales focus Continued strong free cash generation (7.4% EBITDA
margin) and reduction of net debt Fast growing regional and global cooperation Further strengthening corporate governance and
continued transparent communication
24
Four Key Priorities in 2003
1. Build sustainable sales growth
2. Immediate reduction of structural costs
3. Continued focus on cash flow and deleveraging balance sheet
4. Regional and global cooperation
25
Continued Strengthening of Concepts to Accelerate Sales Growth
Food Lion: sales building initiatives, reinforced priceleadership and continued expansion
Hannaford: continuation of the Festival strategy Kash n' Karry: reinforced focus on meat and produce Delhaize Belgium: ongoing differentiation by continued
renewal of our store network and further reinforcement of the fresh products offering
Alfa-Beta - Trofo & Delvita: completing Trofo integration and expansion
Asia: network strengthening
26
Reducing Cost Base to Reinforce Competitive Position and Protect Profitability
Store closings in the U.S. and streamlining of the Food
Lion support structure
New commercial policy at Delhaize Belgium resulting in
lower operations and marketing costs
Major savings of USD 40 million in purchase of indirect
goods and supplies at Food Lion
Integration Trofo in Alfa-Beta
Merging Czech and Slovak support services at Delvita
27
Reducing Cost Base to Reinforce Competitive Position and Protect Profitability
Supply chain optimization: evaluation project at Food
Lion and fully automated break pack facility at Delhaize
Belgium
Continued investment in information systems: new
inventory management system at Delhaize Belgium and
Food Lion
Regional and global synergies: buying, energy, supply
chain, benefits, retail practices, IT, organizational
development, risk management
28
Deleveraging Balance Sheet Through Strong Free Cash Flow Generation
Significant free cash flow generation by Delhaize America of USD 667 million (2001-2002) through:
Strong EBITDA:USD 2.4 billion (2001-2002)
Working capital improvements of USD 91.5 million (2001-2002):
1999 2000 2001 2002Inventory turnover 6.5x 8.0x 8.2x 8.3xInventory days on hand 57.8 47.5 42.8 44.9
29
Commitment to USD 1 Billion Free Cash Flow Target Delhaize America
(2001-2003)
Sales and EBITDA expansions
Working capital improvements
Capital spending controls
Dividend management
Portfolio management
30
Regional and Global Cooperation
Simplified financial and management structure
Efficient corporate structure supporting banners
Rapidly increasing synergies on regional and global level
Exchange of best practices and knowledge
31
Characteristics Delhaize Group
A focused organization One business: food retail Lean and aligned management team
A disciplined organization Immediate cost reductions Building sustainable sales growth Prudent in our approach
A profitable organization Leading local banners with strong market shares Ongoing high margins Strong free cash flow generation
Food Lion Strategy
Rick Anicetti, CEO of Food Lion, LLC
33
Food Lion
34
Challenges
• Depressed economic conditions in the Southeast of the U.S.– Higher unemployment rates in North and South Carolina – Significant military deployment from our major markets
• Competition– Most large supermarket operators and many regional and local chains
operate in the Southeast market– Competing with Wal-Mart Supercenters for almost 10 years– New non-traditional formats: dollar stores, limited assortment stores,
drugstores• Customer choices
– Food Lion serves approximately 10 million loyal customers each week, a stable number compared to 2001
– But transaction size and frequency have decreased in 2002 due to:• Economy• Competition
35
Food Lion Strategy Addresses Consumer Expectations
Source: Food Marketing Institute (2002)
Clean, neat store
Friendly associates
Convenient locations
Store layout
Fast check-out
High-quality fruits and vegetables
High-quality meats
Low prices
On-sale items or special promotions
Store experience and atmosphere
Convenience
Quality and variety in fresh departments
Low price leadership
Consumer Expectations Food Lion Strategy
36
Low Price Leadership
• Cost Efficient Operation– Cost reduction – USD 100 million in 2003
• Close 41 unprofitable stores • Revise store labor model to focus on high value
activities that are aligned with strategy• Eliminate non-value added activities throughout the
support structure– Reduction in workforce – 400 positions
• Consolidate fragmented activities and reduce redundancy
– Indirect purchasing project
37
Low Price Leadership
• Cost Efficient Operation, continued– Additional opportunities
• Optimize supply chain processes and systems
• Introduce manufacturing techniques in labor intensive departments
• Continue U.S. and global synergy identification
38
Low Price Leadership
• Delivering Price– Maintain strong consumer images related to price
leadership
– Leverage cost efficient operation to support investment in price position
– Continued refinement of zone pricing (rolled out in 2001-2002)
– Refine pricing strategy to deliver the appropriate balance between everyday shelf pricing and promotional activity
– Deliver consistent and dependable pricing message to customers
39
Quality and Variety in Fresh Departments
• Capitalize on progress achieved to date– Produce sales distribution increased in 2002
• Optimize supply chain processes and systems– Product sourcing
– Quality assurance
– Variety
– Fresh chain management
– Store delivery frequency
40
Locational Convenience through aDense Store Network
41
Store Prototypes
• 45 new Food Lion stores in 2003• 150 potential additional new sites
in next three years
Current new store prototypes - 28,000 and 38,000 square feet
Modern convenient store
More focus on fresh offering
Increased services
Low breakeven point
42
38,000 Sq. Ft. Prototype – Very Favorable Consumer Response
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Shelves Well S
tocked
Overall Satis
faction
Knowledgeable, Helpful E
mployees
Reasonable Checkout Tim
e
Lowest Total S
hopping Bill
Company
New Prototype
43
Store Experience and Atmosphere
• Consistent execution across retail stores– Standard Practices
• Clean and well-kept store environment
• In-stock conditions
• Increase variety in fresh departments
• Effective store signage and messaging
• Prepare for peak customer traffic
• Fast, efficient check-out
• Friendly associates
• Available associates
44
Mid/Long-Term Strategy
– Further develop an exciting and compelling shopping experience as defined by on-going consumer research
• Leverage and maintain strong price perception• Transform offering in fresh departments• Redefine customer service • Design and deliver distinguished convenience
– Raleigh Project• Leverage planned remodel activity to implement
these concepts
45
Focused on Consumer Expectations to Support Continued Success and Growth
Foc
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Var
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Man
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ech
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New
Sto
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Pro
toty
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Ral
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P
roje
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Low Price Leadership
Fresh Products - Quality and Variety
Convenience
Store Experience and Atmosphere
Current Initiatives
Foc
used
Str
ateg
y
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